Corporate Social Responsibility Disclosure, Financial Performance and Firm Value: The Case of Saudi Arabia

Abstract

This study aims to recognize corporate social responsibility disclosure level and its potential influence on financial performance and firm value in an emerging country, Saudi Arabia. Both the manual content analysis and regression analysis were used to examine a sample of 267 annual reports of Saudi listed firms during 2007-2011. ROA was used as an accounting-based proxy for financial performance, while Tobin’s Q was used as a market-based proxy for firm value. The results indicate a social disclosure average of 13%, lower but near to levels of 14.61% and 16% found by Al-Janadi et al. (2013) and Macarulla and Talalweh (2012), respectively, in Saudi samples. The results also indicate that social disclosure level could improve both financial performance measured by ROA and firm value measured by Tobin’s Q. Further, role duality, institutional and state ownerships and firm age are found to affect positively the financial performance, but none of governance variables is found to affect firm value.
These findings provide empirical evidence on economic implications of social disclosure that could help formulate firm disclosure policies and develop accounting and disclosure regulations. Also, the study tests the arguments of instrumental stakeholders’ theory and good management theory regarding benefits of social and voluntary disclosures and arguments of agency theory regarding impact of corporate governance on firm financial performance and value.