The effect of Islamic values on voluntary corporate governance disclosure: The case of Saudi listed firms

Purpose – The study examines the effect of Islamic values on the extent of voluntary corporate governance (CG) disclosure. In addition, we investigate the effect of traditional ownership structure and CG mechanisms on the extent of voluntary CG disclosure.

Design/methodology/approach – We distinctively construct Islamic values and voluntary CG disclosure indices using a sample of 75 Saudi listed firms over a seven-year period in conducting multivariate regressions of the effect of Islamic values on the extent of voluntary CG disclosure. Our analyses are robust to controlling for firm-level characteristics, fixed-effects, endogeneities and alternative measures.

Findings – We find that corporations that depict greater commitment towards incorporating Islamic values into their operations through high Islamic values disclosure index score engage in higher voluntary CG disclosures than those that are not. Additionally, we find that audit firm size, board size, government ownership, institutional ownership and the presence of a CG committee are positively associated with the level of voluntary CG disclosure, whilst block ownership is negatively associated with the extent of voluntary CG disclosure.

Practical implications – Our study has clear practical implications for future research, practice and broader society by demonstrating empirically that corporations that voluntarily incorporate Islamic values into their operations are more likely to be transparent about their CG practices, and thereby providing new crucial insights on the effect of Islamic values on voluntary CG compliance and disclosure.

Originality – To the best of our knowledge, this is the first empirical attempt at explicitly examining the effect of Islamic values on the extent of voluntary CG disclosure. We also offer evidence on the effect of traditional CG and ownership structures on the extent of voluntary CG disclosure.

Keywords: Islamic values, corporate governance, Ownership structure, Voluntary disclosure, Saudi Arabia

Paper type: Research paper