Islamic Corporate Governance and Voluntar Risk Reporting in Saudi Arabia: The Role of Corporate Life Cycle
The main objective of study is to investigate the relationship between Islamic corporate governance effectiveness and the level of voluntary risk disclosure (VRD). The study also investigate the role of corporate life cycle (CLC) in the relationship. Islamic corporate governance effectiveness is represented by Shari’ah Supervisory Board (SSB)’s effectiveness. The sample of study consists of 167 firm-year observations of Islamic financial institutions (IFIs) listed on Saudi Arabia Stock Exchange (Tadawul) during the years of 2013–2017. Data were collected from companies’ annual reports. The results show that SSB’s effectiveness has a positive impact on level of VRD. Additionally, SSB’s effectiveness is associated with higher level of VRD in mature-stage companies. The study enhances the current understanding on the importance of SSB’s effectiveness, as an Islamic corporate governance mechanism for accountability reporting to stakeholders. A strong relationship between SSB and VRD for mature companies is economically justified by resource dependency theory that suggest, mature companies have more resources to report higher quality and transparent risk disclosure. The findings are useful to accounting and regulatory bodies by providing possible solutions to improve the risk reporting of companies in Saudi financial sector. This study improves the methodology used in past studies on the measurement of SSB’s effectiveness, which include the combination of SSB size, SSB frequency of meetings, SSB reputation, and SSB cross membership.