IFRS adoption, firms’ investment efficiency and financial reporting quality: a new empirical assessment of moderating effects from Saudi listed firms
Authors: Alruwaili Waleed S. , Ahmed Abdullahi D. , Joshi Mahesh 
Published: March 2023

PurposeUnder 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/approachThis 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.FindingsThe 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 implicationsFirst, 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, it is recommended that future research undertake a various quasi-experimental design such as a difference-in-difference approach to estimate the causal effect of corporate governance mechanisms on IFRS 7 mandatory disclosure requirements on in Saudi Arabia context.Social implicationsThere is a lack of studies on this realm and such as these studies will enrich the understanding of aspects of IFRS adoption and contribute to the prior empirical literature. Importantly, the extend of this sample into other Gulf Cooperation Council countries and exhibition the difference effect can be very useful to enrich the knowledge of IFRS adoption aspects in corporate disclosure and accounting information quality.Originality/valueSaudi Arabia has undergone several reforms in governance, and their standards of internal controls are changing rapidly. This has been attributed to the importance of providing guidelines, practices and regulations for listed companies. One of the major turning points of financial reporting quality in Saudi listed firms was adoption of IFRSs. This adoption deems to be necessity in ensuring the highest level of transparency and information reliability. Based on the findings of this research, the present investigations set up a platform and furnish many implications for policymakers, companies’ board of directors, financial analysts and other related authorities. The results should provide policymakers with greater insight of the relationship between disclosure quality and corporate-specific characteristics throughout the IFRS adoption periods. Thus, the results derived from this study can be effective and useful for the IFRS adoption committee in the Saudi Organization for Certified Public Accountants (SOCPA). According to the best of the authors’ knowledge and based on official secondary information sourced from the SOCPA website, there are several standards that are subject to difficulties in measurement and are modified from time to time, such as: IFRS1, IFRS8, IFRS12, IFRS16 and IFRS18.