Understanding Environmental Transparency: A Study of Saudi Arabian Companies
DOI:
https://doi.org/10.15291/oec.4417Keywords:
Environmental disclosure, Environmental responsibility, Corporate governance, Company characteristics, Saudi ArabiaAbstract
This study explores the determinants of corporate environmental disclosure (CED) practices among listed companies in Saudi Arabia through an integrated agency theory and legitimacy theory lens. Drawing from a sample of 87 non-financial firms over 2015-2019, the analysis examines how corporate governance attributes like board size, board independence, and audit committee independence, as well as firm-specific characteristics including size, leverage, and international diversification influence the extent of environmental disclosure. The findings reveal positive associations between CED levels and factors such as larger firm size, greater international presence, and operations in environmentally-sensitive industries. Conversely, increased leverage and surprisingly, larger board sizes exhibited negative relationships with disclosure extent. Board independence and audit committee independence showed no significant impact. To the best of the authors' knowledge, this represents the first investigation within the Saudi context examining the effects of audit committee independence and internationalization on CED. With a comprehensive set of explanatory variables and 435 firm-year observations, a larger-scale analysis is enabled compared to prior Saudi studies. By adopting the Global Reporting Initiative (GRI) environmental disclosure index, the study enhances comparability and precision in tracking CED trends over time. However, the study is limited by its reliance on annual report disclosures alone and the cross-sectional nature of the data. Future research could explore CED determinants through different theoretical lenses, such as stakeholder theory, institutional theory, and signaling theory, assess disclosure quality dimensions, and employ longitudinal panel analyses to provide further insights. The findings nonetheless underscore the need for stricter corporate governance regulations clarifying director independence criteria and sustainability reporting standards in Saudi Arabia to enhance transparency and environmental stewardship.
References
Abdulhaq, A.S., & Muhamed, A.N. (2015). Extent of corporate social responsibility disclosure and its determinants: Evidence from Kingdom of Saudi Arabia, South East Asia Journal of Contemporary Business, Economics and Law, 7(1), 40-47.
Abo Shareb, N. (2023). CSR in Law and Practice in Saudi Arabia Compared with the UK Model (PhD thesis), University of Sheffield. https://etheses.whiterose.ac.uk/32456/
Aburaya, R. K. (2012). The Relationship between Corporate Governance and Environmental Disclosure: UK Evidence (Doctoral dissertation), Durham University, Durham, United Kingdom. http://etheses.dur.ac.uk/3456/
Akbas, H. E. (2016). The Relationship between Board Characteristics and Environmental Disclosure: Evidence from Turkish Listed Companies, South East European Journal of Economics and Business, 11(2), 7-19. https://doi.org/10.1515/jeb-2016-0007
Alazzani, A., Aljanadi, Y., & Shreim, O. (2019). The Impact of Existence of Royal Family Directors on Corporate Social Responsibility Reporting: A Servant Leadership Perspective, Social Responsibility Journal, 15(1), 120-136. https://doi.org/10.1108/SRJ-07-2017-0138
Albawwat, A. H. (2022). The Influence of Audit Committee Characteristics on Voluntary Disclosure of Annual Financial Reports in Jordan, Universal Journal of Accounting and Finance, 10(1), 161-170. https://doi.org/10.13189/ujaf.2022.100117
Alotaibi, K.O., & Hussainey, K. (2016). Determinants of CSR disclosure quantity and quality: Evidence from non-financial listed firms in Saudi Arabia, International Journal of Disclosure and Governance, 13(4), 364-393.
Andrikopoulos, A., & Kriklani, N. (2013). Environmental Disclosure and Financial Characteristics of the Firm: The Case of Denmark, Corporate Social Responsibility and Environmental Management, 20(1), 55-64. https://doi.org/10.1002/csr.1281
Ardi, J., & Yulianto, A. (2020). The Effect of Profitability, Leverage, and Size on Environmental Disclosure with the Proportion of Independent Commissioners as Moderating, Accounting Analysis Journal, 9(2), 123-130. https://doi.org/10.15294/aaj.v9i2.36473
Benlemlih, M., Shaukat, A., Qiu, Y., & Trojanowski, G. (2016). Environmental and Social Disclosures and Firm Risk, Journal of Business Ethics, 152, 613-626. https://doi.org/10.1007/s10551-016-3285-5
Ben Mahjoub, L. (2019). Disclosure about corporate social responsibility through ISO 26000 implementation made by Saudi listed companies, Cogent Business & Management, 6(1), 1609188. https://doi.org/10.1080/23311975.2019.1609188
Boshnak, H. A. (2022). Determinants of Corporate Social and Environmental Voluntary Disclosure in Saudi Listed Firms, Journal of Financial Reporting and Accounting, 20(3/4), 667-692. https://doi.org/10.1108/JFRA-05-2020-0129
Brammer, S., J. & Pavelin, S. (2008). Factors Influencing the Quality of Corporate Environmental Disclosure, Business Strategy and the Environment, 17(2), 120-136. https://doi.org/10.1002/bse.506
Branco, M. C., & Rodrigues, L. L. (2008). Factors Influencing Social Responsibility Disclosure by Portuguese Companies, Journal of Business Ethics, 83, 685-701. https://doi.org/10.1007/s10551-007-9658-z
Buniamin, S., Alrazi, B., Johari, N., & Rahman, N. (2008). An Investigation of the Association between Corporate Governance and Environmental Reporting in Malaysia, Asian Journal of Business and Accounting, 1(2), 65-88.
Burgwal, D. van de, & Vieira, R. J. O. (2014). Environmental Disclosure Determinants in Dutch Listed Companies, Revista Contabilidade & Finanças, 25(64), 60-78. https://doi.org/10.1590/S1519-70772014000100006
Campbell, D., Craven, B., & Shrives, P. (2003). Voluntary Social Reporting in Three FTSE Sectors: A Comment on Perception and Legitimacy, Accounting, Auditing & Accountability Journal, 16(4), 558-581. https://doi.org/10.1108/09513570310492308
Chaklader, B., & Gulati, P. A. (2015). A Study of Corporate Environmental Disclosure Practices of Companies Doing Business in India, Global Business Review, 16(2), 321-335. https://doi.org/10.1177/0972150914564430
Chapple, W., & Moon, J. (2005). Corporate social responsibility (CSR) in Asia: A seven-country study of CSR web site reporting, Business & Society, 44(4), 415-441. https://doi.org/10.1177/0007650305281658
Chebbi, K., & Ammer, M.A. (2022). Board composition and ESG disclosure in Saudi Arabia: The moderating role of corporate governance reforms, Sustainability, 14(19), 12173. https://doi.org/10.3390/su141912173
Cheng, E. C. M., & Courtenay, S. M. (2006). Board Composition, Regulatory Regime and Voluntary Disclosure, The International Journal of Accounting, 41(3), 262-289. https://doi.org/10.1016/j.intacc.2006.07.001
Cho, C. H., & Patten, D. M. (2007). The Role of Environmental Disclosures as Tools of Legitimacy: A Research Note, Accounting, Organizations and Society, 32(7-8), 639-647. https://doi.org/10.1016/j.aos.2006.09.009
Clarkson, P. M., Li, Y., Richardson, G. D., & Vasvari, F. P. (2008). Revisiting the Relation between Environmental Performance and Environmental Disclosure: An Empirical Analysis, Accounting, Organizations and Society, 33(4-5), 303-327. https://doi.org/10.1016/j.aos.2007.05.003
Deegan, C. (2002). Introduction the Legitimising Effect of Social and Environmental Disclosures – A Theoretical Foundation, Accounting, Auditing & Accountability Journal, 15(3), 282-311. https://doi.org/10.1108/09513570210435852
Deegan, C., Rankin, M., & Voght, P. (2000). Firms’ Disclosure Reactions to Major Social Incidents: Australian Evidence, Accounting Forum, 24(1), 101-130. https://doi.org/10.1111/1467-6303.00031
Dyduch, J., & Krasodomska, J. (2017). Determinants of corporate social responsibility disclosure: An empirical study of Polish listed companies, Sustainability, 9(11), 1934. https://doi.org/10.3390/su9111934
Ezzeddine, B. M., Garoui, N., & Sweiti, I. (2020). On the Determinants of Environmental Information Disclosure: Evidences from Industrial Saudi Listed Firms, Agrociencia Journal, 54(1), 62-78. https://ssrn.com/abstract=3667320
Fama, E.F., & Jensen, M.C. (1983). Separation of ownership and control, The Journal of Law & Economics, 26(2), 301-325. http://www.jstor.org/stable/725104
Farooq, M. U., Kazim, I., Usman, M., & Latif, I. (2018). Corporate Governance and Audit Fees: Evidence from a Developing Country, Pakistan Journal of Commerce and Social Sciences, 12(1), 94-110. https://hdl.handle.net/10419/188337
Gerged, A., Beddewela, E., & Cowton, C. (2020). Is Corporate Environmental Disclosure Associated with Firm Value? A Multi-Country Study of Gulf Cooperation Council Firms, Business Strategy and the Environment, 30(1), 1-19. https://doi.org/10.1002/bse.2616
Global Reporting Initiative. (2013). G4 Sustainability Reporting Guidelines - Implementation Manual. Retrieved from https://respect.international/g4-sustainability-reporting-guidelines-implementation-manual/
Gray, R., Owen, D., & Maunders, K. (1987). Corporate Social Reporting: Accounting and Accountability, Prentice-Hall International.
Gray, R., Owen, D. L., & Adams, C. (1996). Accounting and Accountability: Changes and Challenges in Corporate and Social Reporting, London: Prentice-Hall Europe
Greening, D. W., & Turban, D. B. (2000). Corporate Social Performance as a Competitive Advantage in Attracting a Quality Workforce, Business & Society, 39(3), 254-280. https://doi.org/10.1177/000765030003900302
Habbash, M. (2016). Corporate Governance and Corporate Social Responsibility Disclosure: Evidence from Saudi Arabia, Social Responsibility Journal, 12(4), 740-754. https://doi.org/10.1108/SRJ-07-2015-0088
Hackston, D., & Milne, M. J. (1996). Some Determinants of Social and Environmental Disclosures in New Zealand Companies, Accounting, Auditing & Accountability Journal, 9(1), 77-108. https://doi.org/10.1108/09513579610109987
Haniffa, R. M., & Cooke, T. E. (2002). Culture, Corporate Governance, and Disclosure in Malaysian Corporations. ABACUS, 38(3), 317-349. https://doi.org/10.1111/1467-6281.00112
Hummel, K., & Schlick, C. (2016). The Relationship between Sustainability Performance and Sustainability Disclosure – Reconciling Voluntary Disclosure Theory and Legitimacy Theory, Journal of Accounting and Public Policy, 35(5), 455-476. https://doi.org/10.1016/j.jaccpubpol.2016.06.001
Ienciu, I.-A. (2012). The Relationship between Environmental Reporting and Corporate Governance Characteristics of Romanian Listed Entities, Journal of Accounting and Management Information Systems, 11(2), 267-294. http://online-cig.ase.ro/RePEc/ami/articles/11_2_11.pdf
Market Authority of Saudi Arabia. (2023). Implementing regulations. https://cma.org.sa/en/RulesRegulations/Regulations/Pages/default.aspx
Ince, D. (1998). Corporate Social and Environmental Reporting: an Application of Stakeholder Theory (PhD thesis), University of Exeter, UK.
Institutional Shareholder Services. (2023b, July 5). ISS Insights. https://insights.issgovernance.com/posts/the-evolution-of-esg-in-the-middle-east-a-focus-on-saudi-arabia-qatar-the-uae-and-turkiye/
Issa, A. (2017). The Factors Influencing Corporate Social Responsibility Disclosure in the Kingdom of Saudi Arabia, Australian Journal of Basic and Applied Sciences, 11(10), 1-19. https://ssrn.com/abstract=3252993
Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X
Jensen, M. C. (1993). The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems, The Journal of Finance, 48(3), 831-880. https://doi.org/10.1111/j.1540-6261.1993.tb04022.x
John, K., & Senbet, L. W. (1998). Corporate governance and board effectiveness, Journal of Banking & Finance, 22(4), 371-403. https://doi.org/10.1016/S0378-4266(98)00005-3
Juhmani, O. (2014). Determinants of Corporate Social and Environmental Disclosure on Websites: The Case of Bahrain, Universal Journal of Accounting and Finance, 2(4), 77-87. https://doi.org/10.13189/ujaf.2014.020402
Kalash, I. (2020). Environmental Disclosure: Determinants and Effects on Financial Performance? An Empirical Evidence from Turkey, Sosyoekonomi, 28(46), 95-115. https://doi.org/10.17233/sosyoekonomi.2020.04.05
Kolk, A., & Fortanier, F. (2013). Internationalization and environmental disclosure: The role of home and host institutions, Multinational Business Review, 21(1), 87-114. http://dx.doi.org/10.1108/15253831311309500
Lindblom, C. K. (1994). The Implications of Organizational Legitimacy for Corporate Social Performance and Disclosure, In Critical Perspectives on Accounting Conference, New York.
Li, Z., Li, P., Zhao, X., & Tu, Z. (2022). Business Strategy and Environmental Information Disclosure Quality: Empirical Evidence from Chinese Heavy Pollution Listed Firms, International Journal of Environmental Research and Public Health, 19(14), 8325. https://doi.org/10.3390/ijerph19148325
Liu, X., & Anbumozhi, V. (2009). Determinant factors of corporate environmental information disclosure: an empirical study of Chinese listed companies, Journal of Cleaner Production, 17(6), 593-600. https://doi.org/10.1016/j.jclepro.2008.10.001
Macarulla, F.L., & Talalweh, M.A. (2012). Voluntary corporate social responsibility disclosure: a case study of Saudi Arabia, Jordan Journal of Business Administration, 8(4), 815-830. https://archives.ju.edu.jo/index.php/JJBA/article/view/3427
Madhani, P. M. (2015). Study of Relationship between Board Committees and Corporate Governance Practices of Indian Firms. Global Management Review, 9(3): 1-19. https://ssrn.com/abstract=2703228
Mathews, M.R. (1993). Socially Responsible Accounting, Chapman and Hall.
Merkl-Davies, D.M., & Brennan, N.M. (2007). Discretionary Disclosure Strategies in Corporate Narratives: Incremental Information or Impression Management?, Journal of Accounting Literature, 26, 116-196. https://ssrn.com/abstract=1089447
Milne, M. J., & Patten, D. M. (2002). Securing Organizational Legitimacy: An Experimental Decision Case Examining the Impact of Environmental Disclosures, Accounting, Auditing & Accountability Journal, 15(3), 372-405. https://doi.org/10.1108/09513570210435889
Monteiro, S. M. S., & Aibar-Guzmán, B. (2010). Determinants of Environmental Disclosure in the Annual Reports of Large Companies Operating in Portugal, Corporate Social Responsibility and Environmental Management, 17(4), 185-204. https://doi.org/10.1002/csr.197
Mousa, G. A., Desoky, A. M., & Khan, G. U. (2018). The Association between Corporate Governance and Corporate Social Responsibility Disclosure-Evidence from Gulf Cooperation Council Countries, Academy of Accounting and Financial Studies Journal, 22(4), 1-19. http://dx.doi.org/10.2139/ssrn.3354398
Nguyen, T. A., & Tran, H. L. (2022). The Determinants of Corporate Social Responsibility Disclosure: Evidence from Vietnam’s Listed Companies in Chemical Industry, Journal of International Economics and Management, 20(1), 18-41. https://doi.org/10.38203/jiem.020.1.0002
Razak, R.A. (2015). Corporate Social Responsibility disclosure and its determinant in Saudi Arabia, Middle East Journal of Scientific Research, 23(10), 2388-2398.
Reverte, C. (2009). Determinants of Corporate Social Responsibility Disclosure Ratings by Spanish Listed Firms, Journal of Business Ethics, 88, 351-366. https://doi.org/10.1007/s10551-008-9968-9
Roberts, R. W. (1992). Determinants of Corporate Social Responsibility Disclosure: An Application of Stakeholder Theory, Accounting, Organizations and Society, 17(6), 595-612. https://doi.org/10.1016/0361-3682(92)90015-K
Saudi Tadawul Group. (2021). ESG Disclosure Guidelines. Retrieved from https://sseinitiative.org/wp-content/uploads/2021/11/Tadawul-ESG-Disclosure-Guidelines-EN.pdf
Sulaiman, M., Abdullah, N., & Fatima, A. (2014). Determinants of Environmental Reporting Quality in Malaysia, International Journal of Economics, Management and Accounting, 22(1), 63-90. https://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/253
Xie, B., Davidson, W. N., & Dadalt, P. J. (2003). Earnings Management and Corporate Governance: The Role of the Board and the Audit Committee, Journal of Corporate Finance, 9(3), 295-316. https://doi.org/10.1016/S0929-1199(02)00006-8
