summary and powrpoint to my research

I, Elaf Jarrah, hereby declared that the work in this thesis was carried out in accordance with the regulations of Yanbu University College (YUC). It is original and is the result of my own work, unless otherwise indicated or acknowledged as referenced work. This topic has not been submitted to any other academic institution or non-academic institution for any other degree or qualification.

In the event that my thesis be found to violate the conditions mentioned above, I voluntarily waive the right of conferment of my degree and agree be subjected to the disciplinary rules and regulations of Yanbu University College.

Name of Candidate: Elaf Jarrah

Candidate’s ID No: 09120040

Program: Bachelor of Science in Accounting

Thesis Title: Factors influencing corporate social responsibility disclosure in Saudi Arabia

Signature of candidate:

Date: June 2015

This study investigates whether a firm and industry characteristics are potential determinants of corporate social responsibility disclosure (CSRD) in Saudi Arabia listed companies. This study examines CSRD in the annual report of 166 companies listed on Tadawul Stock exchange in 2013. CSRD in Saudi Arabia varies across companies and industries with almost 66% of the listed companies report it in their annual report. The findings show that company size and profitability is positively significant in determining CSRD. The result indicates that company with higher total asset discloses more CSR information in their annual report. The result also shows that company with higher profit discloses more CSR information in their annual report. However neither leverage nor environmental sensitivity seems to explain CSRD in the listed firms. Therefore, it seems that the legitimacy theory as captured by those variables related to social visibility is the most relevant theory for explaining CSRD practices of Saudi Arabia listed firms. The result of this study extends the stream of research that confirms the factors influencing CSRD. The paper provides insights into CSRD in Saudi Arabia that will benefit all stakeholders with an interest in corporate reporting in this region. The findings highlight the need for improvement by Saudi Companies in many areas, especially in regard to the regular updates of corporate social responsibility information provided on their annual report.

In the Name of Allah, the most Gracious and most Merciful

I send my special appreciation to the Yanbu University college staff that worked closely with me during the period of my research. I would like to thank my supervisor and my teacher for all previous years Ms Rahayu Abdul Razak for her tireless efforts and guidance throughout my research process.

I would also like to thank my lovely mother and great father for the support and the encouragement they gave me when I was doing my research and for their patience, prayers, and understanding over the time period of my study.

Also a special thank you to my husband for being patient with me and encouraging me to complete my degree.

I do extend my gratitude to my friends, colleagues and other individuals not mentioned here, who in one way or another contributed to the successful completion of my research project.

Thank you God for all the blessings you gave to me

CANDIDATE’S DECLARATION iii ABSTRACT iv ACKNOWLEDGEMENTS v TABLE OF CONTENT vi CHAPTER 1 8 INTRODUCTION 8 1.0 INTRODUCTION 8 1.1 CORPORATE SOCIAL RESPONSIBILITY 8 1.2 CORPORATE SOCIAL RESPONSIBILITY IN SAUDI ARABIA 10 1.3 PROBLEM STATEMENT 11 1.4 OBJECTIVE OF THE STUDY 11 1.5 CONTRIBUTION OF THE STUDY 12 1.6 ORGANIZATION OF THE THESIS 12 CHAPTER 2 13 LITERATURE REVIEW AND THEORETICAL FRAMEWORK 13 2.0 INTRODUCTION 13 2.1 CSR DISCLOSURE THEORETICAL FRAMEWORK 13 2.1.1 FACTORS INFLUENCING CSRD 13 2.1.2 Factors influencing CSRD in Saudi Arabia 18 2.2 SUMMARY AND CONCLUSION 20 CHAPTER 3 21 RESEARCH METHODOLOGY AND DESIGN 21 3.0 INTRODUCTION 21 3.1 FRAMEWORK AND HYPOTHESES 21 3.1.1 CSRD framework 22 3.1.2 Research hypothesis 23 3.2 METHODOLOGY 29 3.2.1 SAMPLE 29 3.2.2 TEST PROCEDURE 30 3.3 SUMMARY AND CONCLUSION 31 CHAPTER 4 32 RESEARCH FINDINGS AND DISCUSSION 32 4.0 INTRODUCTION 32 4.1 EMPIRICAL RESULT 32 4.1.1 DESCRIPTIVE STATISTICS 32 4.1.2 CORRELATIONS 33 4.1.3 ROBUSTNESS OF THE MODEL 34 4.1.4 MULTIVARIATE RESULTS 35 4.2 DISCUSSION OF THE FINDINGS 36 4.4 SUMMARY AND CONCLUSION 38 CHAPTER 5 39 CONCLUSION and RECOMMENDATION 39 5.0 INTRODUCTION 39 5.1 SUMMARY OF THE EMPIRICAL FINDINGS IN THE STUDY 39 5.2 CONTRIBUTION OF THE STUDY 41 5.3 LIMITATIONS OF THE STUDY 41 5.4 RECOMMENDATION AND SUGGESTION 42 5.5 CONCLUSION 43 REFERENCES 44 TABLES 47 FIGURES 56

This chapter provides an overview of the thesis. This thesis examines the factors influencing corporate social responsibility disclosure in Saudi Arabia.This chapter commences with a discussion of the broad areas of concern investigated by this thesis in Section 1.1; followed by Section 1.2 which presents the statement of the research problem; Section 1.3 which discusses the objective of the study; Section 1.4 which provides significant of the study; and the final section which provides an outline of the structure of the thesis.

Corporate social responsibility (CSR) is a concept that is becoming more popular and important in all types of businesses. The World Business Council for Sustainable Development (WBCSD) describes Corporate Social Responsibility (CSR) as the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. In July 2001, a Green Paper Promoting a European framework for CSR provides a wider definition of CSR as a “concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”. Nelson et al., (2006) summarized the definition by stating that CSR encompasses not only what companies do with their profits, but also how they make them. As such, it goes far beyond philanthropy to include issues of corporate risk management and competitiveness. At the same time what companies do through their philanthropic programs can make meaningful contribution to achieving community and national development goals.

In relation to the CSR definition, Grey et al (2001) define CSR disclosure (CSRD) as a process of providing information about interactions between companies with regard to environment, employees, society, and consumer issues. It is also a process of providing financial and non-financial information in the social and environment context (Hackston and Milne, 1996).

Over the last decade, due to increase in public awareness and interest in environmental and social issues and increased attention in mass media, more companies disclosed corporate social responsibility activities. Companies usually inform of their CSR activities in the annual report or in separate social reports (CSR report or Sustainability report). Companies choose to disclose CSR activities and treating CSR as a strategic tool where the potential corporate benefits hinge on the communication of corporate responsibility (Polonsky & Jerons, 2009). Even though reporting CSR activities by corporation will definitely add costs to the organization which in turn reduce the level of company profitability (Iqbal, Ahmad, Basheer, & Nadeem, 2012; Khanifar et al., 2012). Nevertheless, corporation still embrace in CSR as it contribute benefit to corporate public relations, media campaigns and reputation management (Boesso, Kumar, & Michelon, 2013). Furthermore, being socially responsible may direct corporation to better resource, increase employee motivation, lead to effective marketing; this entire factor will result in creation of unforeseen opportunities within the industry (Iqbal et al., 2012).

Another trend that leads to an increase disclosure of CSR activities is the growth in demands by stakeholders for companies to demonstrate greater accountability and transparency. This trend is being driven by a combination of low trust in large companies, easier access to information via internet, more open societies and press freedom, greater public awareness of global issues, increased consumer choice and sophistication, the war for talent and higher public expectations of the private sectors (Tankeem, 2010). As a result, there is growing demand for publicly listed companies to issue CSR or sustainability report and/or to include information on these issues in their annual report.

There were many researches that focus on the factors or determinants of CSR disclosure. However most of the research done has been in developed countries. There is still a need for more attention to be paid to developing countries, especially Saudi Arabia, because the social and economic environment in Saudi Arabia differ from those of liberal market economies and these differences are reflected in accounting disclosure practices.

Therefore this paper aims to investigate the factors that influence CSR disclosure (CSRD) in Saudi Arabia. This study will develop hypothesis on the association between CSRD and various independent variables that were identified from previous study. Specifically, the objective of the study is:

a. To examine the relationship between company size and CSRD

b. To examine the relationship between industry affiliation (industry with high public visibility and industry with potentially more important environmental impact) and CSRD

c. To examine company’s profitability and CSRD

d. To examine company leverage and CSRD

To the best of the researcher knowledge, there is no study examining the factors that influence CSRD in Saudi Arabia. Consequently, this study is the first to explore this issue. The researcher hopes that this study will contribute to the limited literature on CSRD in Middle East in general and in Saudi Arabia in particular. This study is important as it help informing regulators whether CSRD can be explained by the identified variables. As such, Saudi government, Tadawul stock market and Saudi companies gain some new insights from this study in terms of understanding the determinant of CSRD.The result of this study also will be of interest to the researchers and academic community due to a lack of formal research body addressing the issues of CSRD in Saudi Arabia.

The remainder of this paper is organized as follows. The next chapter provides a review of the literature on the theoretical and empirical findings of the factors influencing corporate social responsibility disclosure. Chapter 3 describes the research hypotheses. This is followed by a description of the research methods, including data collection and analysis, used in the study. The results and findings of the study are then presented and discussed in Chapter 4. Summary and conclusions, including possible limitations and areas for future research are presented in the final chapter.

The aim of this chapter is to review and evaluate available literature on the CSRD in general and on the factors influencing CSRD in specific. Extensive literature is available, from many countries, on the subject of CSRD, in particular the USA, the UK and Australia. However there is limited literature on CSRD determinants in Middle East and in Saudi Arabia in particular. A summary of these studies, together with the variables used in them will be given in this chapter. This chapter concludes with the reason for undertaking the study on the factors influencing CSRD in Saudi Arabia.

Several studies have been carried out to explain the factors that influence CSRD. Branco and Rodrigues (2008) investigate the factors that influence social responsibility disclosure by Portuguese companies listed on Portuguese Stock Exchange in 2004. The study compares the internet and annual reports as media of social responsibility disclosure and analyzes what influence disclosure. The study uses content analysis to measure the level of social responsibility disclose in company website and on the annual report. A scoring system that added the scores for each company was used to assign a point for each social responsibility disclosure theme pertaining to any of the categories considered. The study divided the disclosure into four categories namely environmental, human resource, product and consumers and community involvement. The independent variables or factors that influence social responsibility used in this study include international experience, company size, consumer proximity, environmental sensitivity and media exposure. The control variable used includes profitability and leverage. International experience is measured by the percentage of sales outside Portugal to total sales as reported in the segment data of the financial statements. Total asset is measured using the total assets as reported on the balance sheet. Consumer proximity is of binary measure of high profile and low profile. A high profile companies are those in household goods and textile, beverages, food and drug retailers, telecommunications services, electricity, gas distributions, water and bank sectors. All other sectors are considered low profile. Environmental sensitivity is also of binary measure of more sensitive and less sensitive. More sensitive sectors are identified as mining, oil and gas, chemicals, construction and building materials, forestry and paper, steel and other metals, electricity, gas distribution and water. Other sectors are considered less sensitive. Measurement for media exposure is based on the number of articles mentioned in two Portuguese newspapers. The study used multiple regression models to analyze the relationship between total social responsibility disclosure and each of the independent variables. The result shows that company size and media exposure have a positive significant relationship with social responsibility disclosure.

Mohammad Zain & Janggu (2006) examined the extent of social and environmental disclosure of 37 construction companies listed on the Malaysian Stock Exchange from 1998 to 2002 with specific company’s characteristics of size, profitability, leverage and audit firm. Social and environmental disclosure levels were assessed by the number of sentences in the annual report. The result provides strong evidence that CSRD is positively related to companies’ size and profitability. This indicates that the bigger, in term of size and profitability a company is, the more the company discloses its social and environmental information. However no significant relationship was found between the level of CSRD and financial leverage and size of audit firm. This indicates that financial leverage and size of audit firm do not influence the level of social information disclosed.

Wan Abdul Rahman et al ( 2011) examined the level of CSR disclosure of 44 government-linked companies (GLC) listed on Bursa Malaysia in 2005 to 2006 to ascertain the relationship of certain company characteristic namely size, age, profitability and leverage on the total CSR disclosure. The study use content analysis method to measure the CSRD practices in companies’ annual report. The CSR practices is measured based on the number of sentences reported on four social disclosure themes namely human resource, community, marketplace and environment. The independent variables include company size, age, profitability and leverage. The result shows the increasing pattern of disclosure in GLCs companies over the two year period. As for the determinants: only size show significant positive relationship. Size is measured based on total asset, as such the result indicates that GLCs with high total asset tend to disclose more CSR information than GLCs with lower total assets. The remaining variables were found to be insignificant in explaining the total disclosure.

Sayd Farook et al (2011) examined the determinants of Islamic banks social disclosure. By applying the principles of system-oriented theories such as political economy, legitimacy and stakeholder theories, as well as agency theory, the researchers developed hypotheses linking Islamic social disclosure and its determinants. The study use sample comprised of 47 Islamic Banks in 14 countries. Annual reports of fully fledged Islamic Bank for the year 200 were used. Ordinary least square regression is used to examine the relationship between CSRD and the independent variables. CSRD was constructed using an index of expected CSRD of Islamic banks operating in Muslim countries. The indexes were derived from Maali et al (2003) and contain 32 items in nine broad categories which include sharia opinion, unlawful(haram) transactions, zakah for banks required to pay, zakah for banks not required to pay, benevolent loans, charitable and social activities, employees, late repayments and insolvent clients, environment and other aspect of community involvement . Items disclose were given a weight of 1 while undisclosed items were weighted 0. The independent variables are categorized into three groups: socio political context, corporate governance and control. The result show that “level of social and political freedom”, “the proportion of investment account deposit to total asset”, “ influence of relevance public” and “the shariah corporate governance mechanism” are significant determinants of Islamic banks CSRD. This concludes that the extent of political and civil repression influences the level of CSR disclosure by Islamic Banks.

Muttakin & Khan (2014) analyzes the determinants of corporate social disclosure in the case of Bangladesh listed firms. The article presented a credible illustration of the potential firm and industry characteristics in which CSR can be used by various listed firm in that country. In this case, a checklist is used to measure the extent of the CSR disclosure in annual reports. This is thus used to examine statistical tool used to develop a self-weighting estimating equation that predicts values for a dependent determinantof CSR disclosure, where the study demonstrates that the CSR disclosure to have positive and significant relationships between the export-oriented sector, firm size, as well as types of industries. Moreover, the study explains the negative relationships that exist between CSR disclosure and family ownership. The overall findings in this study offer empirical evidence that suggests that numerous firms and industry characteristics are typically the crucial determinants in the case of CSR disclosure of Bangladesh, which is a developing country (Muttakin & Khan, 2014). Ultimately, the overall findings listed by the study are critical in helping policy maker adopt essential regulatory reforms that emphasize on improved CSR practices and enhanced organizational legitimacy.

Sommer et al. (2014) analyzes the various determinants of the web-based CSR disclosure in the Food industry in Germany. According to the study, the web-based CSR disclosures are viewed to bear a wide variety of advantages for firms in the German food industry. The study, in this case, emphasizes on investigating the web-based CSR communication within the food process, which included the company in the food industry and small and midsized enterprises (SMEs). The research in this study was conducted through a methodological approach that analyzed corporate communication on websites of food producers from the region of North Rhine-Westphalia Germany (Sommer et al. 2014). The study was based on a dictionary-based content analysis that ordered logit model to establish the relationship that existed between CSR communication and size, indebtedness and closeness to the market, and profitability.

Chiu & Wang (2014) analyzes the determinants of social disclosure quality in Taiwan, where an application of stakeholder theory is extensively used. The study utilizes a stakeholder theory framework to critical examine various determinants of social reporting quality, and equally empirically test the ability of the theory to discuss disclosure in emerging economies, as it is the case with Taiwan. It relies on a sample of 246 listed companies, as well as a hand-collected dataset that entails two years of data based on several survey questions that reflect international disclosure trends. It further applies an aggregate measure of quality with five facets of various corporate social responsibility areas.The disclosure of CSR in annual reports will be investigated by grouping the factors of corporate social activity into five content category themes. First is the activities related to human resource: employee number, turnover, wages system, education level, and career outlook, warranties, and training and qualification enhancement. Second is the activities related to community involvement: participation in promotional programs and projects. Third is the activities related to products and consumers: product quality, safety, environmental impact, development of new green (environmentally-friendly) products. Finally is the energy which relates to the conservation of energy in the conduct of business operations; and discussing the company’s effort to reduce energy consumption; and lastly, environmental activities: implementation of environmental systems, participation in environmental programs. For the rest of the disclosures not related to the themes as mentioned above, they will be grouped into “other” theme. The results achieve in the study support the application, as well as demonstrate that the measures of stakeholder power, economic resources, strategic posture, media visibility, and firm size are closely related to social disclosure quality.

Kansal & Mahesh (2014) investigates the determinants of corporate social responsibility disclosure in regard to evidences from India. The study focuses on extending knowledge in regard to the relationship that exists between numerous financial and non-financial corporate characteristics, as well as the level of social responsibility disclosures using top Indian companies as its basis. The study also investigates the content category theme of CSRD such as environment, energy, human resource, product/consumers, community involvement and others among the selected companies. In addition, itidentifies the location of CSRD within the annual report of the selected companies.Finally, it also examines the amount of CSRD, measured by the number of sentences as reported in the annual report of the selected companies.The corporate size and industry category is subsequently found to correlate with corporate social disclosure of the various companies used and the corporate reputation. This is stated to have had also been recognized through social ratings and awards, which were observed to be an essential factor that widely influences the social disclosures made by companies in India.

There is not much research on CSRD in Saudi Arabia and Middle East in general and specifically there is no study on the factors that affect CSRD in Saudi Arabia. Tamkeen Sustainability Advisors (2010) is a Saudi CSR consulting company establishes in 2005 undertook its first CSR study in 2007. The finding indicates that CSR in Saudi Arabia is still trapped in charity mindset. The second study in 2010 found that many Saudi companies are now beginning to see the merits of engaging in responsible business practices. The study also revealed that there is a lack of government and media support and public and consumer perception of CSR. The study concluded that there is a positive change in CSR in Saudi Arabia and the main sectors where CSR is more active are industrial, banking and retail business.

Zubairu et al (2011) replicated Haniffa and Hudaib (2007) study to examine the social reporting practices of Islamic Banks in Saudi Arabia. The study focus on a comparison of the social disclosure made through the annual report against an ideal level of social disclosure over the period of 2008 to 2009. The ideal level of social disclosure used was developed by Haniffa and Hudaib called Ethical Identity Index (EII) which focuses on the ethical identity of Islamic banks. The index checklist consists of four themes, 9 dimensions and 80 constructs. The result shows that Islamic banks in Saudi Arabia had poor disclosure practices. The findings also show that Islamic banks in Saudi Arabia disclose more information demonstrating the Banks’ commitments to debtors and less disclosure on environment.

Mandurah et al (2012) surveyed a sample of Saudi Arabian firm’s managers to assess the extent of their awareness of CSR. The survey was given to Saudi business manager who are likely to play a key role in articulating the CSR policies if their firms. A total of 120 surveys were distributed with 78 completed. The study found that CSR concept is in the early stage of development in Saudi Arabia. The study also found that CSR in Saudi Arabia tends too lean towards being classical and viewed as philanthropic rather than having strategic orientation. The result showed that Saudi Arabia managers are well aware of the concept of CSR and have positive attitude towards it. However they tend to be less enthusiastic when it comes to their perceptions of top management beliefs. Saudi managers also perceive a lack of clear organizational policies that define and communicate resources needed to achieve social goals as well as a lack of organizational-wide efforts to become socially responsible.

Al Zahrani (2014) examined CSRD practices among Saudi Arabia companies listed in Tadawul stock exchange during 2013. The study use a content analysis approach to examine 111 Saudi listed companies annual report. The study focused on the content category themes of CSRD, identifies the location of CSRD in annual report and also measured the number of sentences of CSR reported. The data is analyzed using frequency and percentage analysis. The study found that there was an extreme diversity in the format and information provided with majority of the disclosure is in the human resources and community involvement themes. The study also found that the majority of Saudi companies reported their CSR activities in Chairman’s statements section. The study also found that the amount of CSRDs reported by the companies showed a significant pattern in the extent and nature. The result showed that a total of 5030 sentences were used to disclose CSR activities across sectors in Saudi Arabia.

This chapter has summarizes the factors that influence CSRD. The variables used in the previous study also have been summarized and theoretical reasons outlined. It is obvious that the CSRD issue has received a lot of attention. However, the issue is still in infancy stage in Saudi Arabia. There is limited published research concerning this issue. That is why this study will undertake to study on the factors influencing CSRD in Saudi Arabia. The next chapter will discuss on the research model and hypotheses of this study.

This chapter focuses on a detailed discussion of the factors that affect CSR disclosure in Saudi Arabia listed companies. The chapter explains the application of CSR in different contexts based on the findings made from the information retrieved from various articles in regard to the topic of study. The purpose of this chapter is to explain how the model specification and hypotheses were being developed and tested. This chapter will discuss the signs and the directions of relations among variables.

Section 3.1 specifies CSR as determined by a set of variables modeled as a system of simultaneous equation. This study uses existing literature to select and define variables in this system. This section continues by stating the hypothesis regarding the signs of the coefficient. Section 3.2 presents the model that will be used, setting out the variables that will be employed in the present study. Finally, this chapter also describes the sample selection process and the method of analysis employed.

This study main objective is to investigate the factors that affect CSRD in Saudi Arabia companies’ listed on Tadawul. The study focuses on several articles that involve the use of CSR in different firms in diverse regions and countries across the world. The research is aimed at overall view of the type and quantity of CSRD practices and ascertains the relationship between CSRD practice and company characteristics in Saudi Arabia.

A number of different theoretical approaches have been used to study the determinants on CSRD. Those researches have looked at both external drivers (external stakeholder, stakeholder activism, institutional pressure) and internal drivers (executive incentives, management team commitments and CEO political ideologies). However the theories that have been most successful in explaining the extent and content in CSR reporting are system oriented theories such as legitimacy theory and stakeholder theory (Gray et al, 1995; Deegan et al, 2000).

Legitimacy theory is based on the notion of a social contract which limits the activities of an organization within the boundaries set by the society (Gray et al, 1996) This theory belief that the organization will gain support from the stakeholders and continue in existence in so far as its activities give benefits or at least are not harmful to society. As such organization continually seek to ensure that they perceived as operating within the bounds and norms of their respective societies, that is, they attempt to ensure that their activities are perceived by outside parties as being “legitimate”. Sethi (1979) argues that if an actual or potential disparity exits between organization and social values, then organization legitimacy will be jeopardized and will give rise to a legitimacy gap. A widening gap will cause an organization to lose its legitimacy. Many studies concur that social and environmental disclosures can be employed by organization to mitigate legitimacy threats and reduce the legitimacy gap.

Stakeholder theory view implicit contract exist between society and organization such that society’s willingness to sanction the economic activities of the organization is contingent upon their operation “within the bounds and norms of society” (Brown & deegun, 1998). Social disclosure provides a means by which organizations can demonstrate that their actions are legitimate and that they have behaved as good corporate citizen (Hoodhiemstra, 2000). Hence stakeholder theory views social disclosure as a response to significant pressures from firms’ external environments.

In conclusion, legitimacy and stakeholder theories argue that corporations should provide CSR information as part of the dialogue between the corporation and greater society.

In order to achieve the stated objective, this study will test the relationship between the dependent variable and various independent variables. The dependent variable for this study is the corporate social responsibility disclosure (CSRD). The analysis of CSRD is made using equal-weighted index, that is, a scoring system which assigns a point for each CSR theme pertaining to any of the categories considered. Disclosure scores for each company are added and not weighted, because it is assumed that each item, of disclosure is equally important (Branco & Rodrigues, 2008). Several empirical studies in the area were of great utility in developing the CSRD index used (Adams et al, 1998; Gray et al, 1995; Hackson & Milne, 1996; Branco & Rodrigues, 2008). CSRD refers in this study is the disclosure in the following four categories: environmental, human resources, product and consumers and community involvement.

Environmental disclosure comprises disclosures relating to environmental policies, environmental management system and environmental awards, the environmental impacts of products and processes, environmental related expenditures, the environmental benefits of products, conservation of natural resources and recycling activities and disclosure concerning energy efficiency (Branco & Rodrigues, 2008). As such environmental disclosure in this context refers to the act of a company informing people the risks and benefits that the environment will be exposed to. In case of risks it is the duty of the organization to try and solve hazards in order to keep the environment and its habitants safe.

Human resources disclosure covers such issues as employee numbers and remuneration, employee share ownership, employee consultation, training and education, employment of minorities or women, and trade union information (Branco & Rodrigues, 2008). As such it is specifically refers to an organization's ability to inform the people within an organization of their rights, responsibilities and expectations (Park & Ghauri, 2015). This is best done when the company develops a fairly constructed job policy that is governed by the human rights code.

Product and consumers disclosure encompasses disclosure related to product quality and consumer relations (Branco & Rodrigues, 2008). It focuses on the companies’ ability to create public awareness of the goods produced and sold to them for consumption. This is best done by the government establishing bureau of standards to determine the quality of products before the companies are authorized to distribute and sell their products.

Community involvement disclosures include disclosures relating to sponsorship, as well as charitable donations and activities (Branco & Rodrigues, 2008). It is the process of engaging in dialogue and collaboration with community members. This involves joining those companies together in-order to enhance participation of the whole community.

The data for the independent variables are extracted from the companies’ 2013 annual reports. Several score sheets are used to measure each of the independent variables according to its scale of measurements (nominal, ordinal, interval and ratio). Following in the same line as Branco & Rodrigues (2008), this study will use the samefactors or determinants variables. The independent variables used in this study will be company size, consumer proximity, environmental sensitivity, profitability and leverage, which will be further discuss in the following section.

Based on the literature review done in chapter 2, the following conceptual framework was developed to suit the study as per figure 1 below. This study use CSRD as the dependent variable. There are five independent variables, which are predicted to have an associated with the dependent variable. Basically this study will show whether there is a relationship between independent variables and dependent variables

Figure 1: Conceptual framework

( IV DV Environmental sensitivity Profitability Leverage Size Consumer P roximity CSRD )

a. Size

Size is a variable that has frequently been used to explain the extent to which corporation disclose information (Jaggi& Low, 2000; Hossain & Reaz, 2009). Size is also used commonly as a proxy for public visibility. Larger corporation are more susceptible to scrutiny from stakeholder groups since they are highly visible to external groups and more vulnerable to adverse reactions among them and larger companies are more diversified across geographical and product markets, thus having larger and more diverse stakeholders groups (Brammer & Pavelin, 2004). It is also more likely that larger, more visible companies swill consider social responsibility activities and disclosure as a way of enhancing corporate reputation. Most studies have found a positive relationship between corporate size and the extent of CSRD. Large Corporation have a more pronounced effect on society and therefore normally have a higher number of stakeholders that influence the corporation (Hackson & Milne, 1996). In addition, media and the public generally demand more information from large corporation than from smaller ones (Adrem, 1999; Stanny & Ely, 2008).Thus, the study suggests the following hypothesis:

H1: There is a positive relationship between company size and CSRD.

The study used total asset to measure the size of the company and this measurement is consistent with previous research by Kansal, M, Joshi, M & Batra, G. S. (2014).

b. Consumer proximity

Consumer proximity refers to the proximity to the final consumer. The nearer a company is to the individual consumer, the more probable is its name to be known to most members of the generalpublic, and hence, the greater will be its social visibility (Branco & Rodrigues, 2008). Consumer proximity entails discovering the requirements of the consumers and finds the ideal solutions for their needs. Consumer proximity can be gauged by looking at the consumer sentiments with regards to whether the company products or services meet their demands. Thus it is hypothesized that community involvement disclosure is associated with the measure of a company’s proximity to the final consumer.

H2: There is a positive relationship between consumer proximity and CSRD .

A binary measure of high profile and low profile is used. A high profile companies are those that are better known to the final consumer and whose names are expected to be known to most members of the general public. Based on Branco & Rodrigues (2008), high profiles company are those in household goods and textiles, beverages, food and drugs, telecommunications services, electricity, gas distributions, water and banks.

c. Environmental sensitivity

Companies in industries that have a larger potential impact on environment are considered to be subject to greater pressures with respect to environmental concerns. Environmental sensitivity as pertains to company activities refers to a situation where companies are able to have concern for the environment in which their business operates and be able to put in place measures to mitigate its destruction. As such, companies in environmentally sensitive industries are more likely to disclose environmental information than companies in less environmentally sensitiveindustries. Thus, the study suggests the following hypothesis:

H3: There is a positive relationship between environmental sensitivity and CSRD.

A binary measure of more sensitive and less sensitive is used. More sensitive industries are companies whose activities involve in higher risk of environmental impact. Based on Branco & Rodrigues (2008), more sensitive sectors are mining, oil and gas, chemicals, construction and building materials, forestry and paper, steel and other metals, electricity, gas distribution and water.

d. Profitability

Profitability is the ability of a business to earn a profit. This can be assessed by looking at the profit and loss accounts as well as looking at the company growth over a long period of time (Cho et al., 2014). Balkaoui and Karpik (1989) explained that the underlying cause of the positive relationship between disclosure policy and profitability is management’s knowledge. Management that has the knowledge to make a company profitable also has the knowledge and understanding of social responsibility which leads to more CSR disclosure. Inchausti (1997) holds that management in very profitable corporation provides more detailed information in order to support its own position and compensation. Ng & Koh (1994) point to the fact that profitable company are more exposed to political pressure and public scrutiny and therefore use self-regulating mechanism as voluntary disclose in order to avoid regulation. The most obvious and explicit explanation might be that profitable corporation have the necessary economic means to make such disclosure (Hackston & Milne, 1996). Thus, the study suggests the following hypothesis:

H4: There is a positive relationship between profitability and CSRD.

This study used accounting based variable of return on assets (ROA) as a measure for economic performance. The selection is consistent with the recent research by Park, B. & Ghauri, P. N. (2014).

e. Leverage

This is the amount of debt used to finance a firm's assets. The power of creditors as a stakeholder group depends upon the degree to which a company relies on debt financing. According to Sommer et al. (2014), a firm with significantly more debt than equity is considered to be highly leveraged. Purushothaman et al (2000) argues that companies with high leverage may have closer relationship with their creditors and use other means to disclose social responsibility information. As such Purushothaman et al (2000) predict a negative relationship between leverage and CSR disclosure. Jensen and Meckling (1976) argue that more highly leveraged firms disclose voluntary information in order to reduce agency cost and as a result their cost of capital. Brammer and Pavelin (2008) conclude that a low degree of leverage ensures that creditor stakeholders will exert less pressure to constrain managers’ discretion over CSR activities, which are only indirectly linked to the financial success of the firm. Thus, the study does not make any assumption about the sign of the association and suggests the following hypothesis:

H 5: There is a relationship between leverage and CSRD.

This study used total debt to total equity as a proxy for leverage of the company, the same proxy used by Park, B. & Ghauri, P. N. (2014).

This study will use a content analysis approach to examine the information cited by all traded companies listed on Tadawul in 2013.Gravem, O. M. B. (2010). Content analysis has been defined as a systematic applicable technique for compressing many word of text into fewer content categories based on explicit rule of coding (Gao, 1996). Content analysis enable researcher to go through large volume of data with relative ease in a systematic fashion (Gao. 1996). Content analysis allows inference to be made which can then be corroborated using other methods of data collection. This study uses a content analysis to collect information for dependent variable and independent variables by checking each annual report of listed companies. This study uses the simplest form of content analysis by detecting the presence or absence of information.

Data is collected for 2013 as it is the most recent years for which company annual reports are available. The sample is used for two reasons (1) consistent with prior studies that assumed listed companies are more likely to have resources to adopt CSR and failure to do so is more likely reflect the result of a deliberate choice (2) Saudi listed companies make the most important contributions to the Saudi Arabian economy.

The data for this research is secondary in nature and obtained from company online annual reports. Since this study is related to CSR disclosure, only companies that report CSR activities in their annual report will be selected as the population of the study. Companies without information of CSR activities in the annual report will not be taken into consideration. There are a total of 168 companies listed on Tadawul in 2013. A final sample of 166 companies listed on Tadawul website in 2013 was collected. Two other companies’ data were not collected because the annual reports were not available for the study period. Table 1 shows thebreakdown of the sample according to the sector. Data were collected from February 26, 2015 until March 19, 2015.

To test the hypothesis, a model is developed for a regression analysis on the relationship between dependent variable and the independent variables. Multiple regression analysis is used because regression analysis represents a well-established and robust statistical tool for investigating the significance and extent of any relationship or association between a variable of interest and other explanatory variables. The regression model is utilized to find out the results of this study and this is in tandem with the previous study (Arussi, et al. 2009)

CSRD = β0+ β1size+ β2proximity+ β3sensitivity+ β4profitability+ β5leverage+Ɛ

Where

CSRD = Total disclosure score in four categories

Size = natural log of total asset

Proximity = consumer proximity is a binary measure of high profile and low profile.

Sensitivity = environmental sensitivity is a binary measure of more sensitive and less sensitive.

Profitability = percentage of return on asset (ROA)

Leverage = percentage of total asset over total debt

Ɛ = error term

This chapter discusses the research finding based on the analysis performed on the hypothetical model. The data for this study is analyzed using the SPSS program. In order to obtain the necessary result, several tests have been performed for the data collected. Among the tests include correlation, regression and collinearity test.

Overall, this chapter is organized as follows: Section 4.1 presents the empirical results and discussion of the findings; followed in the next section by a detailed discussion of the result. The next section discusses on the robustness of the model. This chapter concludes with a highlight of the significant findings.

As stated in the first chapter, the objective of the study is to identify the factors that influence CSR disclosure (CSRD) in Saudi Arabia. In order to do that a multiple regression analysis was performed using a sample of 166 companies listed on the Tadawul in the year 2013. This section presents the preliminary results in the form of descriptive statistics and inter-correlations for the variables used in this study. This section concludes with a detailed discussion of the multivariate results.

With regards to independent variable, Table 3 reports the mean, medians and standard deviation.Al-Razeen, A., & Karbhari, Y. (2004). Overall, the result for ROA shows that the amount of between -1.36 to 2.55 with a mean of around 0.0488. In term of consumer proximity and environment proximity, the average is 0.57 and 0.44 respectively. Leverage range from 0.01 to 1.53 with a mean of 0.4905. In term of asset log, the amount is between 4.49 to 9.64 with the average of around 6.5582.

Based on the descriptive statistic mentioned above, it is clear that the sample selected cover a variety of categories in term of factors affecting CSRD. Thus the results are expected to be normally distributed and reflect the expected result in an accurate, efficient manner.

In order to see whether there is any correlation among the variable, Pearson correlation matrix has been performed. Table 4 presents the correlation matrix for the individual continuous variable used in the OLS regression.

There are only two significance positive correlation between dependent variable (CSRD) and independent variable, it occurs with ROA (p=0.14 and t value= 0.190) and natural log of asset (p=0.042 and t value= 0.345). In addition to the correlation between dependent and independent variable, there are six other significant correlation (at 0.05 significance level or better) recorded for the sample. There is a significant positive correlation between consumer proximity and leverage (p=0.000, t value=0.297) and environmental sensitivity with natural asset log (p=0.000 t value=0.295). There are four significant negative correlation recorded. The negative correlation is between consumer proximity with environment sensitivity (p=0.000, t=-1.000) and consumer proximity with natural asset log (p=0.000, t = -0.295). The other two significant correlations is between leverage and environment sensitivity (p=0.000,t=-0.297) and ROA and leverage (p=0.000, t=-0.169).

Basically, the results of Pearson correlation coefficient for the whole sample are quite low. The highest significant correlation between dependent variable and independent variable is about 34.5%.

To ensure that the model developed for this study is robust, the model was tested for multicollinearity.Naser, K., & Nuseibeh, R. (2003). The possible existence of muticollinearity is tested based on the correlation matrix incorporating all the independent variables as well as computing the variance inflation factor (VIF). Table 6 and 7 present a summary of the result for collinearity test. The measures used to test for collinearity are: (1) tolerance value; (2) Variance Inflation Factor (VIF); (3) Condition Index (C!) and (4) Variance proportion analysis. Result indicates that multicollinearity is a problem for consumer proximity. Because of that consumer proximity is not included in the regression test.

Result for other independent variables indicates that multicollinearity is unlikely to be a problem. In addition, for other variables, the result suggests that in none of the regressions the highest VIF is above 3, there is no evidence of significant multicollinearity in the result of the study. Only VIFs in the excess of 10 are deemed to be evidence of significant multicollinearity (Kleinbaum et al, 1988). Thus, the independent variables in this study do not seem to be severely affected by collinearity and so standard interpretation of the regression coefficient can be made.

In order to find the factors that influence CSR disclosure (CSRD) in Saudi Arabia., this study use multiple regression analysis. Multiple regression tests have been performed for the model identified as follows:

Model

CSRD = β0+ β1size+ β2proximity+ β3sensitivity+ β4profitability+ β5leverage+Ɛ

Each of the dependent variable, CSRD in annual report, is regressed against the transformed independent variables. Table 5presents the result for the multiple regressions where the dependent variable is CSRD and the independent variable is company size, company profitability, environment sensitivity, consumer proximity and leverage. The overall regression on the model is significant as shown by the F-statistic of 6.486 (p=0.000). This suggests that the independent variables considered, when taken together, explain total CSRD and its categories taken individually. However, this does not mean that each of the independent variables contributes to the explanation of the dependent variables.

The model has a moderate fit of around 14% (adjusted r squared) in explaining the dependent variables. Only two of the independent variables are significant in the model: size and profitability. Based on this result, it can be concluded that other variables that were not identified in this study explains around 86% of the dependent variables. In addition to the adjusted R-squared, Table 5 also shows the signs of the beta for independent variables.

The objective of the study is to investigate the factors that influence CSR disclosure (CSRD) in Saudi Arabia. The detail result is as follows:

(a) Company size

This study posits that when company is bigger in size, they will disclose more corporate social responsibility information in their annual report. Company size is measured by the natural log of total assets. The regression result from Table 6reveals that company size recorded a positive significance relationship (at 5% or lower significance level) with a beta of 0.301 (p=0.000). This result indicates that there is a significant positive relationship between CSRD and company size. As such the result confirmed hypothesis 1 of a positive relationship between CSRD and company size. Thus it is concluded that bigger size company or company with large amount of assets disclose more CSR information in their annual report. This result is consistent with the previous study (among others Branco and Rodrigues, 2008, Mohammad Zain & Janggu, 2006 and Muttakin & Khan, 2014) who found that there is a positive relationship between company size and CSRD. As such, it can be concluded that bigger company with a high total asset tend to disclose more CSR information on their annual report.

(b) Company proximity

This study posit that company that is close to customer or better known to the final customers and whose names are expected to be known to most members of the general public will disclose more corporate social responsibility information in their annual report (Branco and Rodrigues, 2008). A binary measure of high profile and low profile is used. Based on Branco & Rodrigues (2008), High Profiles Company are those in household goods and textiles, beverages, food and drugs, telecommunications services, electricity, gas distributions, water and banks. The regression result from Table 6reveals that consumer proximity cannot be performed due to high multicolinearity. As such the conclusion cannot be performed.

(c) Environmental sensitivity

This study posits that companies in environmentally sensitive industries are more likely to disclose environmental information than companies in less environmentally sensitive industries. More sensitive industries are companies whose activities involve in higher risk of environmental impact. Based on Branco & Rodrigues (2008), more sensitive sectors are mining, oil and gas, chemicals, construction and building materials, forestry and paper, steel and other metals, electricity, gas distribution and water. The regression result from Table 6reveals that environmental sensitivity recorded a positive relationship (at 5% or lower significance level) with a beta of 0.054 (p=0.054). However the relationship is not significant. As such, hypothesis 1 of a positive relationship between CSRD and environmental sensitivity is rejected. This result is consistent with Branco & Rodrigues (2008) and Reverte (2009) who found that there is no relationship between environmental sensitivity and CSRD.

(d) Profitability

This study posits that profitable company discloses more CSR information in their annual report. This study used accounting based variable of return on assets (ROA) as a measure for profitability. The regression result from Table 6reveals that profitability recorded a positive significance relationship (at 5% or lower significance level) with a beta of 0.166 (p=0.028). This result indicates that there is a significant positive relationship between CSRD and company profitability. As such the result confirmed hypothesis 4 of a positive relationship between CSRD and company profitability. Thus it is conclude that company with higher profitability (higher ROA) disclose more information about CSR activities in their annual report. This result is consistent with Mohammad Zain & Janggu (2006) who found positive significant relationship between company profitability and CSRD.

(e) Leverage

This study posits that there will be a relationship between CSRD and company leverage. This study used total debt to total equity as a proxy for leverage. The regression result from Table 6reveals that leverage recorded a negative relationship (at 5% or lower significance level) with a beta of – 0.19 (p=0.805). However the relationship is not significance. As such Hypothesis 5 is rejected. This study cannot confirm the relationship between leverage and CSRD.

This chapter summarizes the major findings of the study and draws a general conclusion. The main objective of this study is to investigate the factors that influence CSR disclosure (CSRD) in Saudi Arabia. Section 5.1 provides a summary of the empirical findings in relation to the objectives. The next section discusses the contributions of the study followed by a discussion on the limitations of the study. This section is concluded by offering some suggestions for future directions of research in this area.

Overall, the study established that most companies (66.07%) which are listed in Tadawul Stock Exchange have some CSRD in their annual report. Nevertheless, essentially majority of the companies reveal their CSR activities through Human Resource theme and Environment theme, both with 54.16% and 50% respectively.

Outcomes of the content analysis also propose that CSRD does not differ noticeably across industry groups. Ali, A. J., & Al‐Aali, A. (2012). Neither was there any different pattern for a certain industrial sector. This is amazing given that 15 industrial sectors denoted in the sample, and that they symbolize diverse sectors. It would have been realistic to anticipate that given the variety of the content-category themes in CSR, assured industries might have been more inclined to make CSR disclosures in particular content-category themes in their annual reports. For example, companies in environmentally-sensitive industries such as construction, industrial products and consumer products, may have more environment-related disclosures compared to companies in industries like banking and finance and trading/services. This finding recommends that there is not much dissimilarity in terms of the nature and type of CSRD made across sectors.

Consistent with previous studies, size and profitability have a positive significant relationship with CSRD.Al-Razeen, A., & Karbhari, Y. (2004). These results are consistent with the expectations resulting from the theoretical framework proposed and with previous CSRD studies. Gravem, O. M. B. (2010). The non-significant relation between CSRD and leverage and environmental sensitivity is not an unexpected result. This is in line with the outcomes of the content analysis that CSRD does not differ noticeably across industry groups. Regarding consumer proximity, since regression result cannot be determined the relationship cannot be confirmed.

Therefore, it seems that the legitimacy theory as captured by those variables related to social visibility is the most relevant theory for explaining CSRD practices of Saudi Arabia listed firms. Hassan, A., & Salma Binti Abdul Latiff, H. (2009).Thus, Saudi companies report on CSR activities in order to respond to public pressures and build or sustain corporate legitimacy. In this regard, CSRD can be viewed as a constructed image or symbolic impression of itself that a firm conveying to the outside world to control its political or economic position (Neu et al, 1998).

Moreover, the results of this study suggest that factors which influence CSR practices of Saudi Arabia listed companies are not significantly different than those which influence CSR of companies in other environments. This is consistent with the result of Cormier and Magnan (2003) that suggest the similitude in the way in which disclosures strategies are determined, irrespective of a given country’s socio-cultural environment.

In Saudi Arabia, the study of CSRD has got some shortcomings or limitations but at the same time regarded as important since the information it has about CSR in yearly or annual report is going to give vital and useful information to the general public about the social responsibility of the company. This study also helps to know and understand the general practice of CSR in Saudi Arabia.

Furthermore, this study goes ahead to make contribution and anticipates to review the literature and documenting CSR disclosures. It is also helpful to know the practice of CSR in Saudi Arabia. This is done across industries for relatively large sample of Saudi Arabia companies recently , and by link the gap particularly describing about disclose of the information about CSR in the annual report of Saudi Arabia Companies. However, the study shed more light on extensive of CSRD among Saudi Arabia companies.

There are various limitations of the study should which were noted while doing the research. The first has drawback in the research period used, which is only one year, the year 2013, so that the result represents condition only in that period and the fact that companies websites are always changing is not taken into account.

The second limitation of this research is the issue of content analysis method which is applied it this study that I made since there is some amount of subjectivity that can be detected. In the previous studies, it has been noted that this limitation is applicable to all content analytic studies (Gamble et al., 1996).

The third limitation is that in Saudi Arabia, CSRD has recently put into assumption the strategic significance. Therefore for both the government and the companies, there is lack of a proper regulatory intervention on how and where CSR activity should therefore be disclosed. Therefore, certain information comprised in the yearly report is spread all across the non-financial information in the annual reports hence posing some subjectivity on disclosure theme.

The final limitation is that this study only examined five factors that might explain CSRD i.e. company size, consumer proximity, environment sensitivity, profitability and leverage. There are possibly other factors such as media exposure that could further explain the extent of IFD among Saudi companies. The result of the study shows that the determination coefficient is only 17% meaning that there are other factors influence the level of CSR not yet covered in this research

The importance of this study is that it helps to identify the factors that explain CSR. This also helps the companies in Saudi Arabia Tawadul's stock market, Saudi government and regulators to gain new insights concerning the understanding of determinants of CSR. Also, further study is needed so as to identify other determinant of CSRD in Saudi Arabia since this research study is not significant enough.

The full potential of CSR for Saudi Arabia has not been achieved ,Why? .The reason behind this is that there is a chief implication of this research paper’s findings for both the policy-making and future research by users, reporting companies, hence Saudi companies has not exploited the full potential of CSR. A remarkable aspect of future research would be a relationship between the outcomes from the same companies on the Tadawul Website and the Websites of those companies during the same period (from 2013) or with other periods of time after 2013 to explore changes in practice.

It would be also interesting for future research to extend the scope if this study by involving relative studies with other Arabic or gulf countries such as united Arab Emirates, Qatar and others.

Based on the results, it is very clear enough to say that implementation of CSR is very crucial and necessary hence required at the level of Saudi Arabia context for its SLCs and the CMA including the financial statements users and policy making. This chapter offers empirical findings in relation to the objectives, which previously stated above. It also discusses the contributions of the study, the limitations of the study. In addition, it also offered some suggestions for future directions of research in this area.

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Table 1

TABLE 2

TABLE 3

TABLE 3: Descriptive statistic for independent variable

TABLE 4: CORRELATION

**. Correlation is significant at the 0.01 level (2-tailed).

Figure 1

Column1 percentage of companies with CSRD percentage of companies without CSRD 0.660700000000003 0.339300000000002