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The evolution of financial reporting quality for companies listed on the Tadawul Stock Exchange in Saudi Arabia: New emerging markets' evidence

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  • Alsuhaibani, Waleed
  • Houmes, Robert
  • Wang, Daphne

Abstract

Motivated by the Saudi Arabian government's objective to diversify its economy away from oil and correct deficiencies associated with the Saudi stock market crash of 2006, a series of significant capital market infrastructure reforms were initiated that began with the 2007 reorganization of the Tadawul Stock Exchange (TSE) and the Capital Market Authority (CMA) as its sole regulator. This paper adds to the growing body of emerging market literature by providing new evidence of the effects of these initiatives on earnings quality for firms listed on the TSE. The results of tests of this study provide robust evidence that earnings quality increased during the 2007 to 2018 reform period. In particular, we document that relative to pre – reform years, reform period R squares, earnings response coefficients (ERCs) increased and discretionary accruals decreased. We rationalize these findings by asserting that improved regulatory oversight in juxtaposition with significant reform period investments into Saudi Arabia's capital markets infrastructure enhanced earnings quality (Jiambalvo et al., 2002; Latif et al., 2017; Zhong et al., 2017).

Suggested Citation

  • Alsuhaibani, Waleed & Houmes, Robert & Wang, Daphne, 2023. "The evolution of financial reporting quality for companies listed on the Tadawul Stock Exchange in Saudi Arabia: New emerging markets' evidence," Emerging Markets Review, Elsevier, vol. 55(C).
    • Handle: RePEc:eee:ememar:v:55:y:2023:i:c:s1566014123000146
    DOI: 10.1016/j.ememar.2023.101009
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    More about this item

    Keywords

    Earnings quality; Earnings response coefficients; Tadawul Stock Exchange;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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