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Corporate governance and voluntary disclosure in Kuwait

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Abstract

This study investigates the relationship between corporate governance characteristics and voluntary disclosure in the annual reports of 170 Kuwaiti companies listed on the Kuwait Stock Exchange in 2007. We first identified four major corporate governance characteristics: proportion of non-executive directors to total number of directors on the board; proportion of family members to total number of directors on the board; role duality; and a voluntary audit committee. We then used univariate and multivariate regression analyses to examine the relationship between these characteristics and voluntary disclosure in annual reports. Using a self-disclosure index to measure voluntary disclosure, the average level of voluntary disclosure by sample companies is 19 per cent, indicating some improvement over the sample companies in an earlier study by Al-Shammari (2008), who found 15 per cent voluntary disclosure. This result suggests a trend toward more transparency by Kuwaiti companies. The results indicate that only the existence of a voluntary audit committee is significantly and positively related to the extent of voluntary disclosure. The result is robust with respect to controls for company size, leverage, auditor type and industry memberships. These results indicate the need to improve Kuwaiti market transparency through additional constraints on corporate governance characteristics. It is believed that this result will prove useful to regulators, preparers of financial statements and investors. Specifically, users of accounting information like investors may consult the findings to understand Kuwaiti companies better when diversifying their investment portfolios.

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Notes

  1. For robustness tests, three alternative regression specifications were estimated. The first model was run with a transformed logarithm voluntary disclosure index to ensure that the dependent variable lies between 0 and 1, whereas the second was estimated with rank transformation of the voluntary disclosure indices of the sample companies and independent continuous variables. The third model was an OLS regression after removing the only two outliers in the sample. These procedures have been used in past studies (Wallace et al, 1994; Wallace and Naser, 1995; Owusu-Ansah, 1998; Naser et al, 2002; Al-Shammari, 2008). The results of these models were unchanged as compared to the main model in Table 4. Therefore, they were not reported in the table.

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Acknowledgements

The authors thank the Editor and two anonymous referees for their valuable comments and suggestions that have improved the quality of this paper.

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Authors and Affiliations

  1. Accounting Department, College of Business Studies, Public Authority for Applied Education and Training, PO Box 43197, Hawally, Code 32046, Kuwait

    Bader Al-Shammari

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  1. Bader Al-Shammari
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  2. Waleed Al-Sultan
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1earned his PhD at the University of Western Australia, Perth in 2005. Currently he is an assistant professor at the College of Business Studies, the Public Authority for Applied Education and Training, Kuwait. His research interests are in enforcement and compliance with international financial reporting standards by the Middle Eastern countries, voluntary disclosure, corporate governance and cost of quality reporting. He has published in International Journal of Accounting, Journal of International Business and Economics, Review of Business Research, Journal of Corporate Ownership and Control, and the Middle East Business and Economic Review.

2earned his PhD at the University of Wollongong, Australia in 2000. Currently he is an associate professor at the College of Business Studies, the Public Authority for Applied Education and Training, Kuwait. His research interests are in consumer evaluation by banks, stock market efficiency and voluntary disclosure. He has published in the Middle East Business and Economic Review, the Scientific Journal of Administrative Development, and the International Journal of Business Strategy.

APPENDIX

APPENDIX

Voluntary disclosure index checklist

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Al-Shammari, B., Al-Sultan, W. Corporate governance and voluntary disclosure in Kuwait. Int J Discl Gov 7, 262–280 (2010). https://doi.org/10.1057/jdg.2010.3

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