The Determinants of CSR Disclosure Quantity and Quality: Evidence from
Non-Financial Listed Firms in Saudi Arabia
Khaleed Alotaibi*
PhD Candidate
Plymouth Business School, Plymouth University
khaleed.alotaibi@plymouth.ac.uk
Shaqra University, Saudi Arabia
kalotaibi@su.edu.sa
Khaled Hussainey*
Professor of Accounting
Plymouth Business School, Plymouth University
Khaled.Hussainey@plymouth.ac.uk
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Determinants of CSR Disclosure Quantity and Quality: Evidence from Non-Financial
Listed Firms in Saudi Arabia
Abstract:
The purpose of this study is to examine the practice of Corporate Social Responsibility (CSR)
Disclosure in a Saudi Arabian context. This study has two particular objectives. Firstly, it
aims to measure the level of CSR disclosure quantity and quality. Secondly, it aims to
investigate the determinants of CSR disclosure quantity and quality in a Saudi Arabian
context. The study examined a sample of 171 observations from Saudi non-financial listed
firms covering the period of 2013-2014. In addition, it develops CSR disclosure indices to
measure the level of quantity and quality of CSR disclosure. The study found that Saudi
Arabian firms provided higher levels of CSR disclosure quantity; however, the quality of is
the disclosure was relatively low. In addition, the study found that CSR disclosure quantity
was positively associated with board size and the size of audit committee. However, it is
negatively associated with percentage of governmental ownership, and size of remuneration
committee. On the other hand, the quality of CSR disclosure was positively associated with
the board size and the percentage of managerial ownership. However, the study found a
negative association with the percentage of independent directors. The results suggest that
Saudi Arabia provides higher levels of CSR disclosure quantity with a lower of CSR
disclosure quality. In addition, the levels of CSR disclosure quantity and quality have
different drivers.
Keywords: Corporate Social Responsibility (CSR) Disclosure, Saudi Arabia.
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1. INTRODUCTION
This study aims to address two objectives. Firstly, it aims to measures the level of CSR
disclosure quantity and quality in Saudi Arabian non-financial firms. Secondly, it aims to
identify the factors that may drive managers of Saudi Arabian firms to provide different
levels of CSR disclosure quantity and quality.
Corporate Social Responsibility (CSR) disclosure is considered the main communication tool
for stakeholders of firms regarding CSR activities (Belal & Cooper, 2011). The last few
decades have witnessed an increased interest in CSR (Aribi, 2009) .Today, a number of
stakeholders are demanding social and environmental information, such as information
related to the environment, society and pollution damage. This information would help
companies to justify their activities to a wide range of stakeholders by providing a higher
level of CSR disclosure regarding a number of social and environmental issues, beyond
simply the economic environment of the firm (Daub, 2007).
The CSR is considered a fundamental tool used by companies for public relations to
communicate and create a mutual understanding, managing potential conflicts and providing
legitimacy to the stakeholders and society as a whole (Golob & Bartlett, 2007). It is
evidenced that this form of voluntary disclosure has attracted wider interest in research
studies; however, earlier research highlights some issues relating to the CSR disclosure level
of the company’s annual report in developed countries (e.g., Saudi Arabia).
Currently, the CSR is highly recognised across developed countries, it is not an additional
policy option which firms apply in providing disclosure. ; i.e., companies do not consider the
CSR disclosure to be a luxury nor do they feel that by providing disclosure it somehow
enhances their goodwill when dealing with society. However, firms today consider the CSR
to be a main part of their policies and strategies. Whilst, firms in developing countries are still
in the early stages of adopting the CSR into their strategies and policies as well as integrating
it into the firm’s activities. This study - aims to explore the level of CSR disclosure quantity
and quality in a Saudi Arabia context and will aim to identify the determinants of CSR
disclosure quantity and quality within Saudi Arabian non-financial listed firms.
Saudi Arabia is considered as a member of the Gulf Cooperation Council (GCC). It hosts
many industries such as petrochemicals, - customer services, and cement, refining and
healthcare. Recently, firms in Saudi Arabia have started to pay much more attention to the
CSR activities in their annual reports. Furthermore, the Saudi Arabia governance code has
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considered the disclosure of CSR activities to be part of the required disclosure that should be
provided by firms. This is in turn provides value relevant information to different
stakeholders and contributes to the society as a whole. However, there is no guidance
available in the theoretical and practical frameworks that have examined this phenomenon,
particularly within the Saudi Arabian context.
Further, there are several motivations in examining the level of CSR disclosure quantity and
quality and in identifying the determinants of CSR disclosure in a Saudi Arabian context.
Firstly, Saudi Arabia established a corporate governance code in 2007; the code was
significantly affected by the country’s Islamic principles that led to an introduction of Islamic
characteristics appearing in the governance code. (Albassam, 2014).
Secondly, Saudi Arabia’s economy is considered huge and it has vast economic prominence
in the Arab region. In 2010, it represented 25% of the total Arab Gross Domestic Product
(GDP) and 44% of the total Arab market capitalisation (Albassam, 2014; Alshehri &
Solomon, 2012). Furthermore, Saudi Arabia contains a quarter of the world’s oil reserves and
is considered to be one of the largest oil producers in OPEC. Oil production in 2010 was
about 31% of the total OPEC production (Albassam, 2014; Habbash et, al. 2015).
Thirdly, the ownership structure of firms listed in Saudi Arabia is family and state-
concentrated. This means that family owned firms represent more than 70% of the listed
firms. In addition, the Saudi government owns more than 30% of the Saudi Arabian firms
(Albassam, 2014; Baydoun, et al. 2013; ROSC, 2009; Habbash et, al. 2015).
Finally, to the best of our knowledge, only three studies have previously examined the drivers
of voluntary disclosure in Saudi Arabia; namely, Al-Janadi et al. (2013) and Alsaeed (2006)
and Habbash et al. (2015). This study adds major contributions to research on CSR disclosure
as the voluntary disclosure in Saudi Arabia as follows: Firstly, we have used data from more
wide-ranging and more recently listed non-financial firms covering the period of 2013-2014.
Whereas Al Janadi et al. (2013), covered the period 2002-2003, Alsaeed (2006), covered the
period 2006-2007 and Habbash et al. (2015), covered the period 2007-2011. Secondly, Al-
Janadi et al. (2013) examined the impact of corporate governance on voluntary disclosure,
whereas Alsaeed (2006), examined the impact of firm characteristics on voluntary disclosure.
While Habbash et al. (2015), examined the determinants of voluntary disclosure in Saudi
Arabia. Furthermore, there is limited research in this particular area of investigating CSR
disclosure in the Saudi firms listed; namely, Abbas et al. (2012) examined the nature of CSR
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and how this evolving concept took root in an emerging oil- rich country like Saudi Arabia.
In addition, Mandurah et al. (2012), examined the CSR among Saudi Arabian firms and
Nalband et al. (2013), examined the CSR perception, practices and performance of listed
companies of Saudi Arabia. Consequently, all of them used a qualitative method to
investigate the CSR disclosure in terms of knowledge, awareness and understanding the
managers had towards the CSR.
Our study investigates CSR disclosure level quantity and quality and identifies the
determinants of the CSR disclosure quantity and quality of non-financial firms listed in Saudi
Arabia. This study covers 171 observations carried out in various firms during the period of
2013-2014. All of these factors motivate us to examine the determinants of CSR disclosure in
Saudi Arabia. In addition, it is argued that the area of voluntary disclosure (in general) is still
under-researched (Habbash et al., 2015).
Saudi Arabia provides a unique country context within which the CSR disclosure can be
analysed. This is because of the following reasons. Firstly, Saudi Arabia is a country with an
emerging economy. It has different religious, social and political systems as well as traditions,
which differ from developed countries. For instance, the Islamic principles in Saudi Arabia
affect the daily life, business, law, economics and political aspects of the whole of Saudi
society. Secondly, Saudi Arabia enhanced its corporate governance code in 2012; this
enhanced code requires companies to disclose their CSR activities in their annual reports. In
addition, this code is affected by the country’s Islamic principles, which resulted in the
introduction of Islamic governance characteristics (Albassam, 2014). This is in turn may
affect the level of CSR disclosures of Saudi Arabian firms.
However, there is limited research that examines the practice of CSR disclosure in
developing countries as stated in the annual report by Hussainey et al., 2011; Nalband et al.,
(2013). Existing research on the determinants of CSR disclosure in developing countries is
rare, particularly in Saudi Arabia. Furthermore, in Saudi Arabia there is a lack of concern
among regulatory bodies regarding CSR disclosure; this may be because they feel that CSR
disclosure is not relevant for investors. Therefore, this paper aims to examine the practice of
CSR in a developing country, particularly Saudi Arabia.
This study develops two disclosure indices, one for measuring the level of CSR disclosure
quantity and the other for measuring the level of CSR disclosure quality. It uses samples from
non-financial firms listed in Saudi Arabia over the period of 2013-2014. This study found