SALA/COMEDOR

As reported in panel A of Table 6.1, the log of the number of risk sentences (LogRD) has an average of 1.33. There is a great variation in risk disclosure practices among Saudi listed firms where LogRD ranges from 0 to 1.86 with a standard deviation of 0.25. The distribution of risk disclosure seems to be consistent with the literature. For instance, Linsley & Shrives (2006) find that the mean of risk disclosure is 78 sentences and the standard deviation is 55 sentences among UK listed firms. Similarly, Lajili & Zéghal (2005) find the average risk management disclosure is 10.1 sentences and the standard deviation is 7.23 for Canadian listed firms. A detailed explanation of the level of risk

disclosure and comparison to relevant studies has been discussed extensively in the previous chapter. Panel B shows that Islamic values (IV) range between 0 and 0.44, with an average of 0.19. This finding is slightly lower than the findings by Albassam & Ntim (2016) where they report a figure of 0.29. This difference can be explained by the different samples of the two studies. More precisely, the exclusion of financial firms by this study results in lowering the Islamic values scores given that financial firms score higher than non-financial firms. Financial firms tend to establish a ‘Shariah’ supervisory board, provide a narrative regarding the existence of a ‘Shariah’ review and monitoring unit, and provide an explicit statement regarding its willingness to voluntarily incorporate Islamic values into business operations.

Table 6.1: Descriptive statistics of model 1 variables

Notes: The table displays the Descriptive statistics of model 1 variables. LogRD represents risk disclosure as log of the number of risk sentences, IV represents Islamic values, GOVOWN denotes government ownership, INSIDOWN denotes insiders ownership, INSTOWN denotes institutional ownership, BLKOWN represents block holders ownership, BS denotes board size, ID denotes the percentage of independent directors, NED denotes the percentage of non-executive directors, EDUC represents the education level of the board, RMCOM represents the existence of risk management committee, BIG4 represents the auditor type, LSALES denotes firm size as log of sales, ROE denotes profitability as return on equity, LVG represents leverage, LIQ represents liquidity, and LPAGES represents the log of the annual reports` number of pages.

Variables Observations Mean Maximum Minimum

Std. Dev.

Panel A: Dependent variable

LogRD 463 1.33 1.86 0.00 0.25

Panel B: Independent variables

IV 463 0.19 0.44 0.00 0.10 GOVOWN 463 0.08 0.84 0.00 0.18 INSIDOWN 463 0.16 0.96 0.00 0.20 INSTOWN 463 0.16 0.75 0.00 0.20 BLKOWN 463 0.36 0.95 0.00 0.24 BS 463 8.33 12.00 4.00 1.52 ID 463 0.49 1.00 0.00 0.17 NED 463 0.38 0.71 0.00 0.19 EDUC 463 0.54 1.00 0.00 0.50 RMCOM 463 0.03 1.00 0.00 0.18 BIG4 463 0.66 1.00 0.00 0.48

Panel C: Control variables

LogSales 463 3.00 5.28 0 0.80

ROE 463 0.08 0.39 -0.10 0.58

LVG 463 0.23 0.88 0 0.19

LIQ 463 2.53 6.80 0.48 2.61

LogPages 463 1.73 2.12 1.23 0.15

Government ownership (GOVOWN), calculated as a percentage of the total number of outstanding shares, has a mean of 8% and ranges from 0 to 84%. This finding is in line with previous studies (e.g. Al-Janadi, Rahman, & Haj Omar, 2013). Panel B shows that insiders (INSIDOWN) own an average of 16% of the total outstanding shares. This result also is in line with the findings of relevant studies (e.g. Samaha, Dahawy, Hussainey, & Stapleton 2012).

Another finding reported in Table 6.1 is that the average institutional holding (INSTOWN) is 16% with a range between 0 and 75%. This finding is in line with previous studies. For example, Aggarwal, Erel, Ferreira, & Matos (2011) find that the means of institutional holding are 8%, 9% and 8% in Greece, New Zealand, and Hong Kong, respectively. On the contrary, Chung & Zhang (2011) note that institutional ownership represents, on average, 50% of the total shares for US companies. As shown in panel B, the mean of block ownership (BLKOWN) is 36%, with a floor of 0 and a cap of 95%. These findings are interesting as it appears that the proportion of block holders ownership in Saudi Arabia seems to be lower than other developing countries. For instance, Elghuweel (2015) and Khan (2016) find that the average block holder ownership is 55% both in the Omani and Pakistani contexts. Hence, the findings of the present study suggest that Saudi listed firms have more dispersed ownership structure.

As reported in panel B in Table 6.1, board size (BS) value has an average of 8.33, and a range from 4 to 12 members. This is consistent with previous studies. For instance, Al-Maghzom, Hussainey, & Aly (2016a) finds that the average board size of Saudi listed banks is 9.55 members. Albassam & Ntim (2016), Al-Nodel & Hussainey (2010), and Al- Janadi et al. (2013) report that the average board size of Saudi non-financial companies is 8.4, 7.9, and 8.4 respectively. It is also in line with other findings in the developed markets. As an example, Elzahar & Hussainey (2012) finds that the mean value of board size in the UK is 10.74.

From Table 6.1, it can be noted that the average percentage of independent directors (ID) setting on the board is 49%. This finding is in line with other findings in the developing markets. For instance, Rozaini Mohd Haniffa & Cooke (2002) and Ntim, Lindop, & Thomas (2013) report that 45% and 47% of the Malaysian and South African firms` boards, respectively, are dominated by independent directors.

As reported in panel B of Table 6.1, the proportion of non-executive directors (NED) that sit on the board of Saudi listed firms is 38% on average. This finding is in line with the literature. For example, Haniffa & Cooke (2005) find that non-executive directors account for 43% of the board among Malaysian firms. It appears that the vast majority of board members among Saudi listed firms are either independent or non-executive directors. This is consistent with the best practices of corporate governance.

Looking also at panel B, board education (EDUC) has a mean of 54%. Francis, Hasan, & Wu (2014) and Martikainen, Miihkinen, Kinnunen, & Trober (2015) report that the average board education is 40% and 48% among US and Finnish listed firms respectively. Hence, this finding is consistent with the best practices of corporate governance given the vital roles that higher educated personnel plays as suggested by previous empirical studies (e.g. Francis, Hasan, & Wu, 2014; Jiang & Murphy, 2007; Martikainen, Miihkinen, Kinnunen, & Trober, 2015).

Surprisingly the average of the existence of a risk management committee (RMCOM) is only 3%. This low mean is in contrast to the finding by Muzahhem (2011) and Subramaniam, McManus, & Zhang (2009) where they report averages of 47% and 44% for UAE and Australian firms. However, the Capital Market Authority in Saudi Arabia has recently issued a new version of the Saudi Corporate Governance Code where it encourages the establishment of risk management committees on boards. Therefore, this figure is expected to increase in the near future. Further details are shown in subsection 3.4.1.6.

The auditor type (BIG4) is measured as a dummy variable that takes the value of 1 if the audit firm is one of the big 4 firms and zero otherwise. The average value is 66% for Saudi listed firms. To compare it with the literature, Ntim et al. (2013) find that the average value of auditor type is 87% for South African listed companies. Saudi listed firms seem to be relatively less reliant on Big4 audit firms. However, the reliance on Big4 audit firms by Saudi listed firms increased compared to the historical percentage which is 58% found by Al-Bassam, Ntim, Opong, & Downs (2016) during the period 2004 – 2010.

Regarding control variables, Table 6.1 shows that firm size (measured by the log of total sales, LogSales) has an average of 3 and rages between 0 and 5.28. Profitability (ROE) has an average of 8% with a range between 39% and -10%. Another finding is that the average leverage (LVG) is 23% with a range between 0 and 88%. This finding is in line with the finding by Alzead (2017) where he finds that the average leverage for Saudi listed firms is 24%. Liquidity (LIQ) has a mean of 2.53 and ranges from 0.48 to 6.80. Total disclosure (measured by the log of a total number of pages, LogPages) has an average of 1.73 with a range between 1.23 and 2.12.