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

Waleed Alsuhaibani, Robert Houmes and Daphne Wang

Emerging Markets Review, 2023, vol. 55, issue C

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).

Keywords: Earnings quality; Earnings response coefficients; Tadawul Stock Exchange (search for similar items in EconPapers)
JEL-codes: C33 G15 G28 M41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:55:y:2023:i:c:s1566014123000146

DOI: 10.1016/j.ememar.2023.101009

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