RESEARCH PROBLEM

According to stakeholder theory, firms should take into account the diverse needs

of all stakeholders, which include shareholders, personnel, customers, society,

environmental organizations, and others. Furthermore, corporate social responsibility

(CSR) is a type of corporate self-regulation that is incorporated into a business model and

takes into account the economic, social, and environmental aspects of firm activities

(Cormier et al., 2011; Sun, 2012). Both of the stakeholders' theory and indeed the

concept of CSR challenge the traditional culture of "business is business" by incorporating

morals and values, as well as taking into account the social implications of operational

processes. The emphasis on CSR and social disclosure has grown rapidly in recent

decades, particularly in the aftermath of a major catastrophic industrial disasters.

Examples have included the 1984 Bhopal gas disaster in India, which killed approximately

16,000 people, and the 2010 Gulf of Mexico oil spill, wherein the approximately 3.19

million barrels of oil spilled into the Gulf. Volkswagen was recent times accused of fraud

diesel emission standards for cars sold in the United States and Europe in September

2015.

According with BBC website: www.bbcnews.com, Volkswagen stock has lowered

by more than 30% as a result of monetary penalties of around $18 billion. This drastic

market response to the Volkswagen scandal demonstrates that market participants as

well as other stakeholders are acutely aware of activities that violate the rules designed

to safeguard both society and the environment. These disasters, among many other

things, have increased the pressure on businesses to practice responsibility to society and
provide comprehensive and transparent social disclosure. As a result, the value of social

disclosure has increased more than at any other time in history. The purpose of this

research is to identify the level of corporate social performance and its potential effect on

business performance as well as firm value in Saudi Arabia, an evolving country. Despite

the increasing demand for social disclosure, some managers may be hesitant to spend

on it, as well as firms may choose not to disclose any social information because it involves

additional costs and effort (Qiu et al., 2014). It is critical for disclosure decisions and

regulations to recognize the economic benefits of social disclosure for firms and

stakeholders. Knowing the importance of social disclosure, particularly the impact on the

firm's financial performance may inspire managers to develop a social policy statement

and, as a result, divulge so much social information. Seeing as social disclosure is largely

voluntary and incurs costs (Qiu et al., 2014; Cormier et al., 2011), managers must choose

between increasing social disclosure and incurring costs or saving costs and increasing

net income in the short term. Managers' decisions may change if they acknowledge the

advantages of social disclosure. As a result, there is an urgent need to explore as well as

provide empirical evidence on the positive effects of social disclosure.

The primary goal of this study is to explore the economic importance of social

disclosure by looking at its influence on financial achievement as determined by return

on assets (ROA) and firm value as measured by Tobin's Q. This study imparts by providing

empirical information on the economic connection between social disclosure, which could

help organizations rationalize expenditure on social disclosure. Furthermore, the study

demonstrates from one of the Middle East's largest emerging economies, Saudi Arabia.
Saudi Arabia is among OPEC's largest oil producers, with approximately 25% of the

world's oil reserves (Albassam, 2014), and thus relies heavily on oil revenues as either a

source of national income.

THEORETICAL FRAMEWORK

There are several gaps in the disclosure literature, particularly in relation to Saudi

Arabia. The last three Saudi studies did not examine any of the economic benefits of

social disclosure; instead, they concentrated on its determinants. Moreover, they only

looked at a small-time span of one or two years and had a small sample size. Finally, no

research on the impact of social disclosure on financial performance in Saudi Arabia was

discovered. As a result, this study makes a significant contribution whilst also exploring

the economic impact of social disclosure on economic performance and related value in

one of the Middle East's emerging and most important economic countries, Saudi Arabia,

that used a larger sample size (267 observations) and a lengthier study period (2007-

2011).

METHODOLOGY

This study began in November 2006, following the formal issuance of the Saudi

corporate governance (CG) code. Before exclusions, there are 694 firm-year observations

in Table 1. They precluded observations involving financial and insurance companies, as

well as those with incomplete information on the model variables, yielding a final sample
of 267 firm-year observational data. They discovered that the number of observations

with missing data has decreased from 64 in 2007 to 37 in 2011. This could be due to

firms becoming accustomed to following the Saudi corporate governance code. They

created and tested two models: one for analyzing financial statements using ROA and

another for estimating firm value using Tobin's Q. A sample of 267 annual reports of

Saudi listed firms from 2007 to 2011 were examined using both manual content analysis

and multiple regression analysis. Tobin's Q was employed as an market-based proxy for

firm value, whilst also ROA was utilized as an accounting-based indicator of financial

performance. The findings demonstrate a social confidentiality average of 13%, which is

lower but close to the levels of 14.61% and 16% found in Saudi datasets by Al-Janadi et

al. (2013) as well as Macarulla and Talalweh (2012), respectively.

MAJOR CONTRIBUTIONS OF THE STUDY

According to the findings, the level of social disclosure in Saudi Arabia is 13%,

which is comparable to the 14.61% and 16% found in Saudi samples by Al-Janadi et al.

(2013) and Macarulla and Talalweh (2012). The findings also suggest that levels of social

disclosure may have a positive impact on both financial performance and firm value. It

reinforces the arguments of good management theory, improvisatory stakeholders'

theory, and agency theory that resulted in the emergence can optimize financial

performance of companies and value by reducing agency costs and allowing for more

efficient evaluation. In context of company governance factors, board independence was

found to have no effect either on the financial results or firm value, whereas role duality
has been found to have a significant impact on financial performance though not on firm

value. Besides that, both institutional and state ownership were discovered to have an

impact on financial performance but just not firm value. Eventually, firm age was

discovered to actually improve financial performance, whereas firm liquidity ratio was

discovered to positively affect firm value. Firm size, on the other hand, had no effect.

The findings indicate that social disclosure is valuable and may provide economic

benefits that outweigh the costs. As a result, firm managers could perhaps significantly

raise the quantity and quality of social disclosure. What's more, firm managers must

acknowledge that, while social disclosure is voluntary and incurs additional costs, it has

the potential to enhance firm performance and value. Furthermore, firms that do not

disclose social information or socialize should recognize doing so in order to improve their

financial performance. Finally, market participants could perhaps acknowledge that

organisational and state ownership can help firms enhance their economic performance

and value.

WEAKNESSES OF THE STUDY

There are several limitations to this study. For starters, the study disregards the

combined effect of governance and social disclosure on financial performance and firm

value. Second, it would be far more insightful if the study evaluated the quality of social

disclosure instead of the quantity. In fact, the study disregards the qualitative aspects of

social disclosure data. Third, managers may divulge social information in financial
statements, websites, management reports, or by using the media. Nevertheless, the

study only looked at annual reports. Fourth, while previous research suggests that the

relationship between the social disclosure and financial performance can go both ways,

this study focused solely solely on a single direction: social disclosure to financial

performance. Eventually, the study will encourage researchers to look into other

economic advantages of social disclosure, including its repercussions on information

asymmetry, cost of capital, as well as earnings forecasting models. Moreover, when

conducting an investigation disclosure, researchers could perhaps consider the quality as

well as the quantity. More evidence upon that causality among social financial

performance and disclosure might also be provided by researchers.