Voluntary corporate governance disclosure and bank performance: evidence from an emerging market

• DOI: https://doi.org/10.1108/CG-12-2020-0535
• Published date: 22 October 2021
• Date: 22 October 2021
• Pages: 702-719
• Subject Matter: Strategy,Corporate governance
• Author: Haitham Nobanee,Nejla Ould Daoud Ellili

Voluntary corporate governance

disclosure and bank performance:

evidence from an emerging market

Haitham Nobanee and Nejla Ould Daoud Ellili

Abstract

Purpose –This study aims to explore the extent of voluntary corporate governance disclosure in the

annual reports of banksin the UAE, operating in an emerging economy in the Gulf CooperationCouncil

region. It also examinesthe effect of this non-financial disclosure on bankperformance by differentiating

conventionaland Islamic banks.

Design/methodology/approach –This study applies contentanalysis to explore the extent of voluntary

corporate governancedisclosure using data collected fromthe annual reports of all the banks traded on

the UAE financial markets from 2003 through 2020. It further examines the potential effect of voluntary

disclosureon bank performance using dynamic panel dataregressions.

Findings –The results indicate a low level of voluntary corporate governance disclosure in the annual

reports for most disclosureindices. However, conventional and Islamicbanks do not differ significantly.

Additionally, the results of the robust dynamic panel data from the two-step generalized method of

momentssystem estimation confirm that voluntary corporategovernance disclosure does not affect bank

performancesignificantly.

Practical implications –The findings of this studywould benefit the central bank and lawmakers in the

UAE in developing a framework for appropriate voluntary disclosure and enhancing the corporate

governanceframework to improve the quality of annualreports.

Originality/value –This study contributes to the literature on the extent of corporate governance

disclosure, as well as its associationwith bank performance in an emerging economy by differentiating

betweenconventional and Islamic banks.

Keywords Corporate governance, Content analysis, Islamic finance, Voluntary disclosure,

Dynamic panel data, Banking performance

Paper type Research paper

1. Introduction

In recent decades, listed companies haveexperienced increased pressure to disclose their

corporate governance information, deliver appropriate information to stakeholders and

reduce information asymmetry between insiders and investors. Among the communication

channels, the annual reportis considered the main source of information; it provides several

types of data about the company.

In fact, investors’ dissatisfaction with mandatory corporate governance disclosure and

the stakeholders’ demand for more comprehensive information has increased the need

for voluntary disclosure (Boesso and Kumar, 2007). Moreover, Meek et al.(1995) define

voluntary disclosure as “disclosure in excess of requirements, representing free

choices on the part of the company’s management to provide accounting-related and

other information deemed relevant to the decision needs of the users of their annual

reports.”

Haitham Nobanee and

Nejla Ould Daoud Ellili are

both based at the College

of Business Administration,

Abu Dhabi University,

Abu Dhabi,

United Arab Emirates.

JEL classification –C33, G32,

G34

Received 5 December 2020

Revised 6 May 2021

28 July 2021

13 September 2021

Accepted 29 September 2021

Conflict of interest: The authors

declare that they have no

conflict of interest.

PAGE 702 jCORPORATE GOVERNANCE jVOL. 22 NO. 4 2022, pp. 702-719, ©EmeraldPublishing Limited, ISSN 1472-0701 DOI 10.1108/CG-12-2020-0535

Several studies in the finance literature, such as Chow and Wong-Boren (1987) in Mexico,

Meek et al. (1995) in the USA, the UK and continentalEurope (mainly France, Germany and

The Netherlands), Camffermanand Cooke (2002) in the UK and The Netherlands, Ferguson

et al. (2002) in Hong Kong, Eng and Mak (2003) in Singapore, Makhija and Patton (2004) in

the Czech Republic, Collett and Hrasky (2005) in Australia, Boesso and Kumar (2007) in the

USA and Italy, Wang et al. (2008) in China, Barros et al. (2013) in France, Ho and Taylor

(2013),Nazli and Ghazali (2013) in Malaysia and Bouaziz (2014) in Canada, have explored

voluntary disclosure in annual reports. All these studies show that there is a consensus on

the significance of voluntary disclosure in reducing agency costs within companies.

In the context of emerging markets in Arab countries, the subsequent body of research,

such as Al-Razeen and Karbhari (2004),Alsaeed (2006) and Albassam and Ntim (2017) in

Saudi Arabia, Hossain and Hammami (2009) in Qatar, Haddad et al. (2009),Al-Shattarat

et al. (2010) and Sartawi et al. (2014) in Jordan, Ismail and El-Shaib (2012),Kamel and

Awadallah (2017) and El-Diftar et al. (2017) inEgypt, Al-Shammari and Al-Sultan (2010),Al-

Shammari (2013) and Alfraih and Almutawa (2017) in Kuwait, Al-Janadi et al. (2012) in

Saudi Arabia and the UAE, Kolsi (2017) in the UAE, Chakroun and Mattoussi (2012) in

Tunisia and Jumani (2013) in Bahrain, is related to voluntary corporate governance

disclosure.

This study focuses on the UAE context following many motivations. First, according to the

Corruption Perception Index 2020 issued by Transparency International, the UAE is ranked

the top country in the Middle East and North Africa region and 21st globally. According to

this ranking, the UAE is among the countries with the highest transparency levels in the

world. Second, the UAE is among the most attractive countries for foreign direct

investments (FDI). According to the Kearney FDI Confidence Index, the UAE was ranked

19th globally in 2020 and 21st in 2017. This improvement in international ranking is

explained by the positive sentiments of foreign investors following the improvements

implemented by the UAE financial regulators regarding, among others, corporate

governance. Third, the UAE is the top Gulf Cooperation Council country with the highest

corporate governance index. This indicates that the UAE has the best practice of corporate

governance mechanisms (Pillaiand Al-Malkawi, 2016).

In the general context of emerging markets,particularly in the context of the UAE, this study

aims to measure the degree of voluntary corporate governance disclosure and examine its

effect on the performance of Islamic and conventional banks. This study investigates three

main questions: First, at which level do UAE-listed banks perform voluntary corporate

governance disclosure? Second, is there any significant difference in voluntary corporate

governance disclosure between Islamic and conventional banks? Finally, is there any

significant effect of voluntarycorporate governance disclosure on bank performance?

This study contributes to the existing literature on voluntary corporate governance

disclosure in three important ways. First, this research considers longitudinal data, whereas

most of the previous studies have used only one-year data (Alsaeed, 2006;Boesso and

Kumar, 2007;Chow and Wong-Boren, 1987;Camfferman and Cooke, 2002;Collett and

Hrasky, 2005;Hossain and Hammami, 2009;Kamel and Awadallah, 2017;Makhija

and Patton, 2004;Nazli and Ghazali, 2013;Sartawi et al.,2014). Second, this study focuses

only on banks and further differentiates conventional and Islamic banks, whereas previous

studies have considered all the traded companies, including banks (Barros et al.,2013;

Bueno et al.,2018;Ho and Taylor, 2013;Nerantzidis and Tsamis, 2017;Wang et al., 2008)

and only non-financial companies (Alsaeed, 2006;Al-Shattarat et al.,2010;Makhija and

Patton, 2004; or only financial institutions (Elmagrhi et al.,2016). Third, this study fills the

gap in the corporate governance literature concerning the possible association between

voluntary disclosure and bank performance to convince UAE-listed banks to implement

voluntary disclosure more effectively and enhance their transparency and compliance with

the best practices of disclosure.

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