Impact of corporate governance reforms on financial reporting quality in selected Middle Eastern Countries
Financial crises that affected the stock markets in the Middle Eastern countries highlighted the importance of the financial reporting quality and the needs for financial reforms that can develop financial reporting system. Studies on financial reporting quality (FRQ) have been neglected in th...
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| Main Author: | |
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| Format: | Thesis |
| Language: | English |
| Published: |
2015
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| Online Access: | http://psasir.upm.edu.my/id/eprint/65960/1/GSM%202015%207%20IR.pdf http://psasir.upm.edu.my/id/eprint/65960/ |
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| Summary: | Financial crises that affected the stock markets in the Middle Eastern countries
highlighted the importance of the financial reporting quality and the needs for
financial reforms that can develop financial reporting system. Studies on financial
reporting quality (FRQ) have been neglected in the Middle East region. Although in
recent years many Middle Eastern countries have initiated western-style corporate
governance (CG), little research has been attempted to assess the impact of improved
CG reform on FRQ. The present study addresses these shortcomings by setting three
objectives using a sample of non-financial firms listed on the Saudi Stock Exchange
(Tadawul), the Abu Dhabi securities exchange (ADX), representing the United Arab
Emirates (UAE), and the Qatar stock exchange (QSE). The study employed five
characteristics of the companies’ board of directors as measures; namely, Chief
Executive Officer (CEO) duality, presence of independent members of the board of
directors, holding of multiple directorships, financial expertise of directors, and
social title of directors, as well as two ownership characteristics; namely, directors’
ownership and institutional ownership. The first objective of this study is to
investigate the impact of CG reform on FRQ. This which achieved by investigating
the trends of FRQ before and after the introduction of CG reform, where an
independent sample t-test was used to examine the differences between firms’ FRQ
averages before and after the reform was introduced. The second objective is to
investigate the effect of changes required in the composition of boards of directors
and ownership structures on FRQ, using a regression model under fixed effects
estimators. In order to measure the FRQ, the study adopted Working Capital
Accruals quality (WCAQ) as the most appropriate measure to capture the
transparency and reliability of the financial reporting. The third objective is to assess
the moderation role of CG reform on the relationship between CG characteristics and
FRQ, which was achieved through including interaction terms for the CG reform and
the variables of interest. The main findings of this study indicate that reform in CG was indeed associated
with an improvement in FRQ in both Saudi Arabia and the United Arab Emirates
(UAE), but not in the Qatar sample. The result of test for the second objective
indicated that characteristics of Saudi boards of directors and ownership structure can
explain the variation of firms FRQ to a greater extent than those of UAE and Qatar
governance principles. The study contributes to the theory by extending financial
reporting quality and corporate governance reform in accounting. The implications of
this study include; government regulators can use the findings of this study to
evaluate CG frameworks in their respective countries; and policymakers, can gain a
better understanding of the weaknesses and the strengths of recent CG reform in their
countries. The findings suggested that Middle Eastern countries should develop their
CG system based on the real needs of the local stock market in order to enhance their
financial reporting systems. |
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