Corporate Narrative Disclosures in Saudi Arabia

This study aims to investigate narrative disclosures in corporate annual reports in developing economies, using Saudi Arabia as an example. The primary objective is to understand which institutional factors—including regulation and socio-political and religious contexts—influence narrative disclosures and which challenges are faced by preparers of narrative reports. The data were collected using two methods. First, 175 narrative sections from annual reports (from 2011–2015) of 35 Saudi listed companies were randomly selected and subjected to content analysis. Second, semi-structured interviews were conducted with 40 Saudi annual report preparers and regulators. New Institutional Sociology theory was used to as the theoretical framework of the study to interpret the findings. The findings suggest that corporate narrative disclosures in Saudi Arabia are heavily influenced by the Capital Market Authority as a regulatory body and via coercive isomorphism. Furthermore, the size and complexity of a firm; the desire to create a good company image; and the influence of report users, (foreign) investors and stakeholders, all positively shape narrative disclosures. Peer competitors in institutions and markets have an impact via mimetic isomorphism. Issues concerning the professionality of management and the company philosophy may increase the level of narrative report disclosures; whereas other issues, such as preparer awareness, top management control, negativity of society and characteristics of family institutions (control of decision making, conflict of interest, resistance to change and privacy breaching), negatively influence disclosure. Although the strongest forces are coercive and mimetic isomorphism, economic, political, social, cultural and educational factors influence companies via normative isomorphism, revealing that all three isomorphic forces collectively influence Saudi corporate disclosure practices. The study considers the implications of this research regarding the future of narrative disclosure in the Saudi context and discusses, for example, how to reduce the negative and enhance the positive institutional influences. Finally, suggestions for further research are offered.