Mandatory and voluntary disclosures in GCC listed firms

Boshnak, Helmi

Abstract

The aim of this study is to investigate empirically the extent of mandatory disclosure with International Financial Reporting Standards (IFRSs) and the level of voluntary disclosure by firms in the Gulf Co-Operation Council (GCC) member states — namely, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) — over the period 2010 to 2013, and to explain why some firms disclose more than others. It aims to investigate the determinants of mandatory disclosure and voluntary disclosure in the annual reports of GCC listed firms. It seeks to assess the relationship between a number of firm-specific characteristics such as corporate characteristics, ownership structure factors, corporate governance factors and cultural factors (manager’s personal characteristics) and the extent of mandatory and voluntary disclosures. In addition, the impact of voluntary disclosure level on mandatory disclosure level, the impact of mandatory disclosure level on voluntary disclosure level and sub-sample country groups.
The extent of mandatory disclosure and the level of voluntary disclosure are examined using two different disclosure indices. The former disclosure index contains 325 mandatory disclosure items and the latter disclosure index comprises 129 voluntary disclosure items. The empirical approach is applied to the financial statements of 120 listed firms. Multivariate regression analysis is employed to explore the relationships between the extent of mandatory and voluntary disclosures and firm characteristics of the firms and year dummy variables. The firm characteristics include corporate characteristics, ownership structure factors, corporate governance factors and cultural factors (managers’ personal characteristics). In addition, to the impact of voluntary disclosure level on mandatory disclosure level, the impact of mandatory disclosure level on voluntary disclosure level and sub-sample country groups.
The average level of mandatory disclosure requirements with the 24 IFRSs investigated across firms and years was 0.73, with a range from 61% to 87%. The level of mandatory disclosure increased from 0.71 in 2010 to 0.73 in 2013, indicating that the level of mandatory disclosure has been improving in the region over the study period. However, no firm throughout the study period fully satisfied the benchmark index created. The level of mandatory disclosure varies across the GCC listed firms. The highest average mandatory disclosure level for all years was in the UAE (0.77) followed by Qatar (0.76) Kuwait (0.73) Oman (0.71), Saudi Arabia (0.71) and Bahrain (0.69).

Several firm characteristics helped to explain the level of mandatory disclosure. The extent of mandatory disclosure increased with firm size, international presence (international listing and international sales), group firms, firm age, the proportion of state share ownership, the degree of board independence, and the education level of the board directors and financial controllers. In addition, the level of mandatory disclosure also varied by industry type. In contrast, the level of mandatory disclosure decreased with profitability, the proportion of institutional share ownership, board size, CEO role duality, and the level of voluntary disclosure. In addition, there were significant differences in the level of mandatory disclosure through time and across country groups. The level of mandatory disclosure is higher in sub-sample country group (grouped by high level of exports). However, liquidity was found not a significant factor in explaining variations in mandatory disclosure levels.
The average level of voluntary disclosure, for the GCC listed firms as a whole, across the 13 groups of information categories examined for all years was 0.31; that is, on average firms disclosed 31% of the voluntary disclosure items, with a range from 9% to 68%. The voluntary disclosure mean levels for all years were as follows: Saudi Arabia: 0.45, Oman: 0.36, Bahrain: 0.32, Qatar: 0.32, the UAE: 0.24 and Kuwait: 0.21. The level of voluntary disclosure increased by 1% over the sample period, from 0.31 in 2010 to 0.32 in 2013, indicating that the extent of voluntary disclosure has improved slightly in the GCC listed firms. However, no sample firm fully disclosed the full list of benchmark voluntary information items.
The level of voluntary disclosure varies by the type of information, consistent with existing studies. The highest group scores were for general information (0.66), information about directors (0.57), foreign currency information (0.48) and market-based information (0.42), whereas the lowest group scores were for future prospects (0.08), research and development (0.11), employee information (0.18) and social policy and value added information (0.26). The findings show that GCC listed firms disclose significantly more general information, directors’ information, foreign currency information and market information than future prospect information, research and development information, employee and social information.

The level of voluntary disclosure increased with firm size, leverage, profitability, the proportion of assets in place, multiple listing status, firm age, the proportion of state share ownership, board size and CEO role duality. In addition, the level of voluntary disclosure also varied by industry type. In contrast, the level of voluntary disclosure was lower for service sector firms, and in relation to the proportion of director ownership, the proportion of family members on the board and the extent of mandatory disclosure. In addition, the level of voluntary disclosure is higher in sub-sample country group (developed stock markets). The results show no significant differences in the level of voluntary disclosure through time. However, liquidity, the proportion of institutional share ownership, and the degree of board independence do not evidence a significant association with the level of voluntary disclosure.

Citation

Boshnak, H. Mandatory and voluntary disclosures in GCC listed firms. (Thesis). University of the West of England. Retrieved from https://uwe-repository.worktribe.com/output/886480

• Thesis Type: Thesis
• Publicly Available Date: Jun 7, 2019
• Keywords: mandatory disclosure, voluntary disclosure, GCC listed firms
• Public URL: https://uwe-repository.worktribe.com/output/886480
• Award Date: Jun 1, 2017