The Relationship between Corporate Governance and Voluntary Disclosure: The Role of Boards of Directors and Audit Committees

Abstract

The objective of the present research is to examine the relationship between corporate governance and voluntary disclosure, and to determine how certain factors enhance governance practices and consequently increase voluntary disclosure. The study considers the content analysis of 22 Saudi listed companies from 2015 to 2019. A comprehensive index is developed, with a check-list covering 30 items to extract and measure corporate governance practices and levels of voluntary disclosure. The researchers use ordinary least squares (OLS) regression to examine whether corporate governance-specific mechanisms can explain any differences in voluntary disclosure levels among the listed companies. The results indicate a statistically significant relationship between the number of non-executive directors and board size and the level of voluntary disclosure. This study concluded that non-executive directors and board size are ranked the highest in terms of their positive effects on voluntary disclosure. The relationship between the independent directors and audit committees and voluntary disclosure is insignificant. The results suggest that the high number of non-executive directors and the increase in the number of directors on the boards lead to greater voluntary disclosure of information. This study helps regulators of corporate governance and company directors understand the factors affecting voluntary disclosure. Corporate governance regulators should require an increase in the minimum number of boards and non-executive directors for listed companies in order to gain the desired levels of voluntary disclosure and transparency. Saudi listed companies are advised to willingly increase their board members to the maximum number specified by regulation. This study has some limitations as participants represented a small sample; hence, the results cannot be generalised. Furthermore, the voluntary disclosure data were collected only from annual reports; sources such as websites, public announcements and press releases, were not taken into account, but would have provided many relevant details.

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