Using the data of 122 Saudi listed firms for four years (2012 – 2015), this thesis has answered the research questions as follows. The first question was to determine the level, trend, and practices of the disclosure of risk-related information by Saudi listed firms. This section represents a summary of the findings of the content analysis on risk disclosure practices among Saudi listed firms. The main findings of the content analysis are as follow. The descriptive results show that Saudi listed firms report 24 risk-related sentences on average. This finding reveals that risk disclosure is limited in Saudi Arabia since it is much lower than the risk disclosure in several different contexts. For example, Greco (2012) and Beretta & Bozzolan (2004) find that the average number of risk disclosure is 65 and 75 sentences respectively for Italian firms in their studies. Muzahhem (2011) reports that UAE firms provide, on average, 97 risk sentences. Linsley & Shrives (2006), and Rajab & Schachler (2009) find that the mean of risk disclosure is 78 and 95 sentences for UK listed firms respectively. Konishi & Ali (2007) discover that Japanese firms provide 47 risk sentences on average. Therefore, risk disclosure in the Saudi context appeared to be limited in comparison to other countries.
The low level of risk disclosure in Saudi Arabia can be explained mainly by the lack of enforcement. There were no mandatory requirements for Saudi listed firms to provide risk-related information in the annual reports during the sample period. However, the recent developments in the Saudi context such as the updated version of the Saudi Corporate Governance Code and the adoption of IFRS are expected to enhance the practices of risk disclosure.
The results show that there has been a progressive increase in the average number of risk disclosure among Saudi listed firms over the years 2012 – 2015. The increase in the number of risk-related sentences is more pronounced in the year 2015 due to the increased risk in the Saudi economy resulting from the dramatic decline of oil prices which led to a financial crisis in Saudi Arabia. As a response to the dramatic decline of oil prices, the Saudi government applied a widespread austerity plan which includes the cut of subsidies to firms and households. This finding is compatible with prior research. Gulko, Hyde, & Seppala (2017) discover that UK firms provide significantly more risk disclosure with enhanced quality during the financial crisis in 2008 than the time when the economy is
stable. Abraham & Shrives (2014) suggest that firms` directors disclose more risk information in the time of crisis with a view to enhancing the firms` reputation.
Operational and financial risks are the most frequent disclosed risks while the strategic risk is significantly lower. The limited strategic risk disclosure can be explained by the ambiguity of information. Strategic risks are beyond the firms` control such as the risks related to society, economy, or politics. In fact, risk assessment relies on managerial discretion. Therefore, firms` managers have less incentive to disclose information that might put them at possible legal actions or intense criticisms if their estimation goes wrong (Mohobbot, 2005).
In line with previous studies (e.g. Beretta & Bozzolan, 2004; Lajili & Zéghal, 2005; Linsley & Shrives, 2006; Mokhtar & Mellett, 2013; Muzahhem, 2011; Rajab & Schachler, 2009), the present study finds that most disclosed risk is qualitative in nature. On average, Saudi firms disclose 20.49 qualitative sentences compared to 3.89 quantitative sentences. Linsley & Shrives (2006) argue that companies should disclose more quantitative risk- related information in order to help stakeholders to assess the risk engaged in by firms.
The present study finds that 63% of risk disclosure is future disclosure while historical disclosure accounts for about 37%. On average, Saudi companies disclose fifteen forward-looking risk sentences compared to nine historical risk sentences. Aljifri & Hussainey (2007) and Linsley & Shrives (2005) argue that the disclosure of forward- looking information has the potential to help investors in forecasting future cash flows which result in making better-informed investment decisions as opposed to the disclosure of historical information. the nature of forward-looking information is believed to be more valuable and can be exploited by competitors which might affect the competitive advantage of firms (Aljifri & Hussainey, 2007; ICAEW, 1999). However, it can be argued that forward-looking information is less reliable since it involves a high level of uncertainty in addition to the subjectivity issue associated with forward-looking information (Cabedo & Tirado, 2004).
This study also finds that the majority of risk disclosure in the Saudi context is positive in nature. The average numbers of positive and negative risk sentences are 12 and 9 respectively. Firms` directors have a higher tendency toward the disclosure of positive news while they are hesitated to disclose negative news. In the case of bad news, managers
withhold and accumulate the news until they become definite (Kothari et al., 2009). Linsley & Shrives (2006) argue that managers would not disclose negative news since they prefer to signal a bright image of their risk management performance to the market in order to avoid reputation costs. Hence, regulators should pay more attention to the enforcement of bad risk disclosure since companies have less incentive to disclose such information (Schrand & Elliott, 1998).
The present study uses a one-way ANOVA test to examine the differences in risk disclosure between industries. The results show significant differences between industries in the Saudi context. This finding is expected given that firms in various sectors face different types of risks. These different environmental factors are expected to have significant effects on firms` risks (Beretta & Bozzolan, 2004; Mostafa Hassan, 2009). Moreover, firms` managers usually mimic the disclosure practices of other companies in the same industry regardless of the relevance of the provided information which may result in significant variation among different industries (Hassan, 2009).