IFRS adoption, firms’ investment efficiency and financial reporting quality: a new empirical assessment of moderating effects from Saudi listed firms

• Published in: International journal of accounting and information management 2023-03, Vol.31 (2), p.376-411
• Main Authors: Alruwaili, Waleed S., Ahmed, Abdullahi D., Joshi, Mahesh
• Format: Article
• Language: English
• Subjects: Accounting; Annual reports; Boards of directors; Capital markets; Case studies; Cooperation; Corporate governance; Disclosure; Economic crisis; Economic reform; Emerging markets; Experimental design; Foreign investment; Internal controls; International Financial Reporting Standards; International standards; Investments; Investors; Pandemics; Reforms; Regulation of financial institutions
• ISSN: 1834-7649; 1834-7649; 1758-9037
• DOI: 10.1108/IJAIM-10-2022-0226

Purpose Under a gradual long-term plan of the Saudi Stock Market (TADWUAL) from 2016, Saudi Arabia decided to work with International Financial Reporting Standards (IFRS) board to fully adopt its accounting standards. Saudi Arabia has undergone several reforms in governance and standards of internal controls are changing rapidly. This study aims to assess whether IFRS adoption has any moderator role in the relationship between disclosure quality and firm-specific characteristics in the Saudi Stock Market. Design/methodology/approach This study assesses whether IFRS adoption has any moderator role in the relationship between disclosure quality and firm-specific characteristics in the Saudi Stock Market. The key research hypotheses postulate that compared to IFRS status, after adoption, several independent variables influence the disclosure level. The analysis covers a local sample of 184 Saudi listed firms over the period 2016 to 2020. Using an in-depth content analysis technique, the voluntary disclosure and number of annual report pages are measured manually and year by year to capture levels and unique characteristics. The authors apply cross-sectional regression, first difference method, Pooled OLS and feasible general least square estimations. The mean of disclosure level increases from 33.03% in 2016 to 56.14% in 2020. Findings The results reveal that the vast majority of firm-specific characteristics were significant in pre-IFRS adoption period. First difference analysis shows a significant impact of firm size and non-executive composition on the disclosure level. The authors confirm that IFRS adoption plays a critical role in the quality of firms’ financial reports and supports to create a conducive economic environment in Saudi Arabia. Practical implications First, the implementation of IFRS adoption should impact the Saudi accounting information and disclosure quality in Saudi context markedly. Second, firm-specific characteristics align with corporate governance are the main determinants of accounting information and transparency; therefore, focusing on this angle enables regulators and policymakers to mitigate uncertainty and asymmetric information. Third, the findings of this research state that there is a negative relationship between disclosure quality and board meetings. This encourages policymakers to reconsider the number of board meetings in firms that was not as high as in the developed markets. Notwithstanding all previous implications,