Corporate Governance Disclosure and the Financial Practices - Essay Example

Proposal – UG Module 6IM999 Abdulhakim Alsubaie Number: 100148098 or topic area of proposed study The impact of corporate governance disclosure on the financial reporting practices in a developing country: The case of Saudi Arabia What is the aim of the study? (there should only be 1 Aim) The primary aim of the study would be to assess the impact of corporate governance reporting on the annual financial statements of Saudi Arabian companies. What are the objectives of your study? The study intends to focus on the attributes of corporate governance reporting practices that are prevalent in the Saudi listed companies. The study would primarily accentuate on whether the Saudi Arabian companies comply with the established corporate governance disclosure norms while preparing their annual financial reports. Consequently, this study will add to the corporate governance literature in developing countries by analysing the impact of corporate governance standards on the annual financial reporting practices of Saudi Arabian organizations. The study would further intensify the knowledge of the relationship between the corporate governance disclosure norms and the financial reporting practices in one of the emerging economies. What are your research questions? The study aims to examine the extent of the influence of corporate governance disclosures on the annual reports of the publicly listed organizations in Saudi Arabia, an emerging economy. In view of the research area of the proposed study, the following research questions have been formulated to conduct a comprehensive analysis of the subject: Do the Saudi Arabian companies implement the corporate governance code in their annual financial reports as guided by the Board of Capital Market Authority? What is the extent of corporate governance implementation in Saudi listed companies with reference to disclosure in the Board of Director’s Report, Shareholder’s Dividend Rights, Composition of the Board of Directors, Nomination and Remuneration Committee and Audit Committee among others? To what extent can the Saudi Arabian corporate governance disclosure code be compared with the codes of United Kingdom and the Organizations for Economic Co-operation and Development (OCED) with respect to annual financial reporting? What is the rationale for your study? (200 - 300 words) Include in your rationale how the research will impact on the organisation Corporate governance and compliance to its prescribed practices has always been a subject of discussion in the corporate environment. Adherence to corporate governance practice helps a corporate organization to rationalize risks as well as maximize its business performance at the same time. In the present day aggressive business environment that calls for a firm regulatory setting, compliance to corporate governance norms help organizations to sustain profitability in the long run (Samontaray, 2010). This study attempts to evaluate the influence of corporate governance disclosure guidelines on the Saudi Arabian companies in general and their annual issuance of financial reports in particular. This research study is justified and motivated by several factors. First, the Board of CMA had issued a guidance of corporate governance for the corporate organizations in Saudi Arabia. Studying the extent of influence of corporate governance on the annual reports of the Saudi listed companies would help in understanding the attributes of companies that act in accordance with the CMA guidance. Furthermore, the research study would also benefit in identifying the possible issues that explain the dissimilarities in compliance across Saudi Arabian organizations. Secondly, review of literature on the subject of corporate governance reporting reveals that there are not many empirical researches conducted on the business backdrop of emerging nations, such as Saudi Arabia. The rationale of this research study is to emphasise on the aspects that impel the corporate governance norms in Saudi Arabia. The study would rely on the guidance of corporate governance disclosure as issued by the CMA, to assess the annual reports of Saudi listed organizations. Brief review of relevant literature (500 - 600 words) with a minimum of 6 key publications cited. This segment of the paper endeavours to provide a comprehensive theoretical backdrop of the subject area of this study. Additionally, the literature review would also focus on discussions in relation to the research purpose as well as the research questions to be analysed in this study. Primarily, the literature review section of this study will concentrate on two major aspects of the subject. First, it will provide evidences from past empirical researches that would help in rationalizing this research study and its purpose. The historical facts would be drawn from past research papers, which primarily focused on corporate governance along with financial reporting practices or corporate organizations. Second, the literature review will also comprise of an in depth discussion on the research subject on the basis of theoretical background. Nevertheless, the major consideration of this study will be the effect of corporate governance on financial reporting. The practices of financial reporting had developed from the necessity to update and notify the members in the society in which they are formed. Hence, it is likely that the accounting and financial reporting norms of a particular society would mirror the economic and social environment that affects the trade practice in that region (Kantor & Et. Al., 1995; Al-Rehaily, 1992). The existing corporate governance practices of a region has a major influence on the financial reporting of companies located in that region. Consequently, the guidance of corporate governance issued by the Board of Capital Market Authority in the year 2006 had affected the annual financial reporting customs of the Saudi listed organizations (Al-Moataz & Hussainey, 2010; Al Gafly, 2010). Corporate Governance forms the outline for building long-term trust and confidence between organizations and their respective stakeholders. The corporate governance practices resolve the clash of interest issue between the company and its stakeholders. It helps in doing so by rationalizing and controlling a company’s risks, restricting accountability of the senior management by circumspectly carrying out the decision making process, ascertaining authenticity of annual accounting reports, in addition to offering the extent of confidence that is required for apt functioning of a business (Samontaray, 2010; Hoitash & Et. Al., 2009). Al-Motairy (2003) evaluated the various business regulations in Saudi Arabia in order to assess the condition of the corporate governance practices in the country. He concluded that the regulations need to be reviewed so as to reflect the prevalent corporate governance practices. He also mentioned the need of issuing a guideline for superior corporate practices in terms of financial as well as management affairs. He also emphasized on the institution of a body to speed up the proper implementation of the corporate governance practices. In the year 2003, Work Bank’s Global Corporate Governance Forum (GCGF) along with the Centre for International Private Enterprise (CIPE) studied the corporate governance norms of some Middle East nations. The research revealed that each nation had a different approach towards corporate governance, and this approach depended on the superiority of the nation’s financial market (Saidi, 2004). The broad conclusion of these researches is that the extent of compliance to the corporate governance norms of a nation influences the financial reporting of organizations listed in that nation. This is affirmed by the fact that superior compliance to corporate governance norms increases the confidence of the investors. Moreover, it is necessary to communicate the corporate governance practices to the stakeholders through the annual reports, because their confidence is vital for the growth of the local financial markets (Hussainey & Al-Nodel, 2008; Al-Jaber & Mohamed, 2003). Outline of research methodology, including justification for choices Study indicates a positive trend in the reporting of governance issues. In 2009, the number of listed companies in the Saudi Arabia Stock exchange was 134. Approximately 80% of these companies disclosed their corporate governance issues. The trend up scaled from 2007 where the number of listed companies was 77 and 52 companies gave their corporate governance issues reports ( Al-Moataz & Hussainey, 2010). The governance issues reported on include disclosure of liquidity of the firms, remuneration, and evaluation of board independence. The secondary data utilized in the research will be collected from the corporate websites of the listed companies. For the research sample, around 50 listed companies in the Saudi Arabia Stock Exchange will be selected. These companies would represent the five chief business sectors which include retail agriculture & food industries, industrial investment, multi-investment, and building & construction. These five industries play a vital role in the Saudi Arabian economy and also influence the Saudi Arabia Stock Exchange. This is mainly because most of the Saudi shareholders invest primarily in these sectors. Since these sectors mirror the complete picture of stock exchange, their performances have a direct impact on the economy. Consequently, it is imperative to evaluate the performance of these industries with respect to corporate governance. The inclusion of intensive data is helpful in attaining higher outcome accuracy (Malhotra, 2008). Thus, the inclusion of all the companies that are listed in the Saudi Stock exchange would lead to superior results. Nevertheless, due to limitations like time and length of dissertation among others, considering all the Saudi listed companies for the study will not be possible. Chapter Outlines – what is going to be in each of your Dissertation chapters The first Chapter of the research study, i.e. Introduction, would discuss the importance of corporate governance norms and their influence on the annual reports of listed companies. The second Chapter i.e., Literature Review, reviews pertinent research papers on financial reporting and corporate governance in context of developing countries like Saudi Arabia. The third Chapter, i.e. Methodology, illustrates the research methodology used to analyse the data for this study and the subsequent Chapter, i.e. Data Analysis, evaluates the data and reports the research findings. The fifth Chapter, i.e. Conclusions and Recommendations, concludes and proposes lines for further study. Project Plan – a Gantt chart showing the major activities you need to undertake to hand your dissertation on time (please use MS Project if possible) A minimum of 15 activities is expected for the plan to reasonably reflect what you need to do to complete your dissertation References – a full list of all the sources used in the proposal, presented using the Harvard system of referencing. Al Gafly, A. M. (2010). Corporate Governance of Saudi Arabia; Analytical Study. Unpublished MSc Thesis. Aston University. Al-Jaber, N. & Mohamed, F. (2003), Disclosing Financial Reports On the Internet: A Survey Of Egypt, Saudi And Kuwait, Working paper No. 61, King Saud University. Al-Moataz, E. & Hussainey, K., (2010), Determinants Of Corporate Governance Disclosure In Saudi Arabia. Journal of Economics and Management. Al-Motairy, O. (2003), Implementing Corporate Governance in Saudi Arabia, Arab Journal of Administrative Sciences, Vol. 10, No. 3, pp. 281-305. Al-Rehaily, S. (1992). The Evolution of Accounting in Saudi Arabia: A Study of Its Relevance to the Social & Economic Environment. University of Hull. Fox, W. & Bayat, M. S. (2007). A Guide to Managing Research. Cape Town: Juta and Company Ltd. Hoitash, U., & Et. Al., (2009), Corporate Governance And Internal Control Over Financial Reporting: A Comparison Of Regulatory Regimes. The Accounting Review, 84(3): 839-867. Hussainey, K., & Al-Nodel, A., (2008). Corporate Governance Online Reporting by Saudi Listed Companies. Research in Accounting in Emerging Economics, Vol. 8, pp. 39-64. Kantor, J., & Et. Al., (1995). Financial Reporting Practices in Selected Arab Countries. International Studies of Management & Organization, Vol. 25 (3). Malhotra, N. (2008). Marketing Research: An Applied Orientation. 5th ed. India: Pearson Education India. Samontaray, D. P., (2010). Impact of Corporate Governance on the Stock Prices of the Nifty 50 Broad Index Listed Companies. International Research Journal of Finance and Economics, Issue 41. Saidi, N., (2004). Corporate Governance in MENA Countries: Improving Transparency and Disclosure. The Second Middle East and North America Regional Corporate Governance Forum. [Online] Available at: http://www.oecd.org/dataoecd/17/42/33944145.pdf [Accessed March 14, 2012]. Read More