Perception of the Saudi Stock Exchange Conceptual Framework: Natural Shareholders’ Point of View Research Paper

Introduction

The public limited company plays a major role in the economic viability of a country, and apart from creating jobs for a large number of people; they serve as a source of income for the government through taxes paid on the annual basis. However, the sustainability of the public limited company depends on the public investment in the company.

In Saudi Arabia, public limited companies have grown in numbers since 1975. The number has increased from 14 in 1975 to 85 in 2002, and the number is increasing yearly due to the increase in the foreign investment in the Saudi economy. In addition, the change in Saudi government policy to allow foreign companies to be listed in the Saudi stock exchange since 2000 has led to the increase of the number of companies listed in the Saudi stock exchange.

Meanwhile, to enhance public investment in the companies, the company needs to provide sufficient accounting information to the public in order to increase the public awareness on the suitability of company for investment. (Al-Kazeem and Karbhari, 2004).

Since 1993, Saudi authorities passed an investment law that mandate the revelation of accounting information in assuring the local and foreign investors on the viability of the listed companies in Saudi Arabia. Thus, disclosure of this information is important for both local and foreign investors in making informed decisions before making any investment decisions in Saudi Arabia. (Naser and Nuseibeb, 2003).

It should be noted that few literatures have not cover analysis on the accounting information on the Saudi Stock exchange and the available literature have not made an in-depth analysis on the suitability of the accounting information on the Saudi stock exchange. Moreover, there is a wide gap between theory and practice on the disclosure of accounting in the Saudi stock exchange. The whole lapse is because the accounting professions have not yet fully developed in Saudi Arabia and accounting disclosure was only initiated in 1990, while the first Saudi accounting body (Saudi Organisation for Certified Public Accountant) was only formed in 1993. (Al-Kazeem and Karbhari 2004).

All these lapses on the suitability of the accounting information of the Saudi stock exchange generated the proposed research problem.

Statement of Problem

Thus, the perception that most companies listed in the Saudi stock exchanges do not publicly declare the accounting information due to non-realization of its importance. Unlike most companies in North America and Europe whose accounting information is disclosed to the general public, however in Saudi Arabia, this case is different. It should be noted that stock exchange in Saudi is new compared to other stock exchanges in advanced countries, and foreign investors are not permitted until recently. The problem generates research problems to be addressed by the author.

However, to solve the research problems the author proposes the following research aim and objectives.

Research Aim

The aim of this proposed research is to investigate the suitability of accounting information in the Saudi stock exchange.

Research Objectives

1. To investigate general financial reporting and characteristics of qualitative financial information through an investigation and views of shareholders in Saudi Arabia.
2. To Investigate the qualities that are assumed to make relevant information reliable
3. To examine whether the current professional auditing guidelines are suitable for the needs of shareholders in accessing the reliable information.
4. To investigate the reliability of accounting information and its relevance for the suitability by shareholders.

Meanwhile, solving the proposed research problems and fulfilment of the proposed research aim and objectives are expected to enhance the knowledge of policy makers, foreign and local investors on the suitability of accounting information in the Saudi stock exchange.

To accomplish the proposed research aims and objectives, the following proposed hypotheses are formulated:

• H1: Suitability of accounting information in the Saudi stock exchange is impaired due to non-development of accounting system.
• H2: Shareholders are not adequately informed on the accounting information on the listed companies in the Saudi stock exchange required reviewed of related literatures.

Background and Literatures Review

The section reviews the related literatures on the suitability of accounting information in the Saudi stock exchange. Several literatures will be reviewed in the proposed research to establish the suitability of accounting information in the Saudi stock exchange. It should be noted that since the liberalisation of Saudi stock exchange, many local and foreign companies are listed in the stock exchange. However, disclosure of accounting information in the Saudi stock exchange is affected by many factors.

Related literatures are generally limited to several articles and some related dissertations undertaking by Saudi scholars in the UK and USA. As pointed out by Pirie and Smith (2006), accounting information of the publicly listed company assists the investors in the stock selection in the stock exchange.

Meanwhile, investigation carried out by Naser and Nuseibeh (2003) reveal that International Accounting Standards (IASs) in most advanced countries such as United Kingdom, Japan, United States, Germany and France enhance better quality and high degree of compliance by the listed companies on the stock exchanges.

It should be noted that disclosure of accounting information helps the financial analyst to access the liquidity of the listed companies and company turnover.

Despite the significant of accounting information, the problems about the disclosure of accounting information in Saudi Arabia is due to the fact that several companies are owned by families or the government that do not wish to disclose the accounting information as it is belief that these information are only the family affairs and should not be disclosed to the general public.

The revelation of Al-Razzem and Karbhari (2004) support the argument provided by the previous literatures reviewed. The author agree that most companies disclose their accounting information in advanced countries in order to guide the prospective investors on the viability of the listed company in the stock exchange. They added that profit and loss are declared in the annual company report. Nevertheless, in Saudi Arabia, most listed companies in the Saudi Stock exchange only declare information about the Directors in the annual report and vast majority of financial analysts who consult the annual report of the Saudi listed companies are not able to understand the information in the annual report.

However, El-Ebaishi, Karbhari, and Naser (2003) argue that practise of management accounting is still limited in Saudi Arabia, and there is difficulty of comparing financial statement of several listed Saudi companies because accounting information varies from one company to the other. The author argues that Saudi authorities do not help the improvement of accounting information because the authorities neglect the accounting techniques that may enhance planning and control, and many accounting systems lack appropriate procedures.

Compromising the literatures review requires data collection through surveys and questionnaires, which will be carried out by research methodology.

Methodology

This section provides the methodology used for data collection for the proposed research. The author describes the method of data collection, the techniques used analysing the data collected, and sample population.

Method

The data collection will be based on the primary research method. In the primary research method, the data collection will be based on internet survey, questionnaires, face-to-face interviews, telephone contacts. The author will draw the structured questions for the survey and questionnaires, and this type of questions allow the respondents to choose only one of the answers supplied by the author.

The example of a structured question is :

1) The listed companies in the Saudi stock exchange supply the accounting information to the public

1) Strongly agree 2) Agree 3) Somewhat agree 4) Not agree 5 ) Strongly not agree

Moreover, the author will use unstructured questions for the face-to-face interviews. These types of questions allow the respondents to offer their opinion on the questions posed to them.

The use of telephone contacts is to follow the internet survey and questionnaires sent to the respondents to ensure that the respondents answer and return the questionnaires and internet survey to the interviewer.

Sample population

The sample population consists of holars, Specialists on the Saudi stock trading, Financial analysts, Business men, and academicians with advanced knowledge in Saudi stock exchange. All the target population will be drawn from different part of the world especially from the USA, UK, Saudi Arabia, and other reputable specialists from another par of the world.

Data analysis

To ensure reliability of data for the proposed research, the author uses statistical analysis through qualitative and quantitative procedures to analyze the data collected from internet surveys, questionnaires, and face-to-face interviews.

Time Frame

Due to the importance of this proposed research, the author aims to complete the proposed research within 3 years and be made available to the public.

Research Limitations

This research aims to cover the suitability of accounting information in the Saudi stock exchange, because the Saudi stock exchange only lists the public limited companies, the proposed research will be limited to the companies listed in the Saudi stock exchange. The proposed research will not cover the accounting information on the other companies not listed on the Saudi stock exchange.

Citation Style

The author will use Harvard referencing for all he citations used for the proposed research.

References

1. Al-Kazeem, A, Karbhari, Y (2004). Annual corporate information: importance and use in Saudi Arabia, Managerial Auditing Journal,, 19(1), pp. 117-133).
2. El-Ebaishi, M, Karbhari, E, Y, and Naser, K (2003), EMPIRICAL EVIDENCE ON THE USE OF MANAGEMENT ACCOUNTING TECHNIQUES IN A SAMPLE OF SAUDI MANUFACTURING COMPANIES, IJCM, 13(2), pp 74-101.
3. Naser, K, Nuseibeb,R, (2003), Quality of financial reporting: evidence from the listed Saudi nonfinancial companies, International Journal of Accounting, 38, (1), pp 41-69.
4. Pirie, S, Smith, M, (2006), Relationships between Stock Prices and Accounting Information, Social Science Electronic Publishing, Inc, USA.