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Future-oriented disclosure and
corporate value: the role of an
emerging economy
corporate governance
Kameleddine Benameur
Gulf University for Science and Technology, Mishref, Kuwait
Ahmed Hassanein
Futureoriented
disclosure in
Kuwait
Received 4 January 2021
Revised 24 August 2021
4 February 2022
Accepted 20 February 2022
Gulf University for Science and Technology, Mishref, Kuwait and
Accounting Department, Faculty of Commerce, Mansoura University,
Mansoura, Egypt
Mohsen Ebied A.Y. Azzam
Faculty of Commerce, Menoufia University, Shebin El-Kom, Egypt, and
Hany Elzahar
Arab Open University Kuwait Branch, Al-Farwaniya, Kuwait and
Accounting Department, Faculty of Commerce, Damietta University, Damietta, Egypt
Abstract
Purpose – Kuwait has taken significant steps to reform its corporate governance (CG) by introducing the New
Company Law (NCL) in 2013. This study investigates how this reform of CG mechanisms affects the disclosure
of future-oriented information. Likewise, it explores how CG mechanisms affect the informativeness of this
disclosure.
Design/methodology/approach – The sample comprises the nonfinancial firms listed on the Boursa Kuwait
from 2014 to 2018. The study uses an automated textual analysis to measure the level of future-oriented
disclosure in the annual reports of these firms. The informativeness of disclosure is proxied by firm value at
three months of the date of the annual report.
Findings – The study finds that Kuwaiti firms with larger board sizes and substantial ownership by
institutional investors are less likely to disseminate future-oriented information. Conversely, firms with more
independent directors and larger audit committees are more inclined to provide future-oriented disclosure.
Furthermore, the disclosure of future-oriented information carries contents that enhance investors’ valuations
of Kuwaiti firms, especially in firms with fewer institutional ownership and more prominent audit committees.
Research limitations/implications – It focuses on management decisions to disclose information in the
annual reports. Examining other channels of disseminating information, such as social media disclosure,
provides avenues for future research.
Practical implications – Policy setters in Kuwait should consider the importance of some CG mechanisms to
improve the transparency of Kuwaiti firms, as suggested by the NCL. Likewise, investors should rely on such
specific CG mechanisms to build their prospects about the firm’s value.
Originality/value – Apart from developed countries, the current study is the first evidence on how CG
mechanisms could affect the informativeness of future-oriented disclosure in a developing economy. It is also
the first to investigate the new CG mechanism introduced by Kuwait NCL in 2013.
Keywords Future-oriented disclosure, Corporate governance, Corporate value, Automated textual analysis,
Developing country, Gulf country, New Company Law, Kuwait
Paper type Research paper
The authors would like to thank the Research & Development Office at Gulf University for Science and
Technology (GUST), Kuwait, for funding this research project.
Journal of Applied Accounting
Research
© Emerald Publishing Limited
0967-5426
DOI 10.1108/JAAR-01-2021-0002
JAAR
1. Introduction
Firms’ reporting requirements and practices evolve, and narrative disclosure has become a
substantial part of the annual report. Narrative information provides textual analyses of a
company through its board of directors (Merkley, 2014). Notably, it helps market participants
to bridge the gap between financial information and the economic reality of a firm (Feldman
et al., 2010). The International Accounting Standard Board (IASB) recommends that firms
have a future orientation to their analysis and discussion in the narrative sections. It states
that “management should include forward-looking information. Such information should
focus on the extent to which the entity’s financial position, liquidity, and performance may
change in the future. Management should provide forward-looking information through
narrative explanations or through quantified data”. Such information helps investors and
different market participants understand a firm and predict its future earnings (Hussainey
et al., 2003; Muslu et al., 2015).
Despite the usefulness of future-oriented information, firms may avoid disclosing it due to
its sensitivity. Price Waterhouse Coopers states that “Many companies fear the increasing
demand for forward-looking information will force them to disclose competitively-sensitive
information, make profit forecasts or expose themselves to the threat of litigation”. Given that
disclosing future-oriented information is at the discretion of corporate management, this role
may lead to an information asymmetry issue that may adversely affect corporate resource
allocations (Healy and Palepu, 2001). In response, corporate governance (henceforth, CG),
through its monitoring role, can act as a mechanism to reduce information asymmetry and
increase the relevance of information (Hassanein et al., 2019).
The aim of the study is twofold. First, it investigates the extent to which the CG
mechanisms affect the disclosure of future-oriented information in the annual reports of
Kuwaiti firms. In particular, we investigate the effectiveness of the following observable
mechanisms in the Kuwait New Company Law (NCL): the size of the board and its
independence; the role duality of the CEO and chairman; existence of audit committee;
together with the institutional ownership, which is the common form of ownership in Kuwaiti
firms. Second, it explores the effect of CG mechanisms on the informativeness of disclosures
of future-oriented information. Specifically, we explore how CG mechanisms affect the
association between this disclosure and corporate values in Kuwait.
This research is motivated by several considerations. First, most studies on futureoriented information focus heavily on developed countries (Hassanein et al., 2019; Li, 2010;
Muslu et al., 2015; Hassanein and Hussainey, 2015). Nevertheless, there is relatively limited
research on Gulf Cooperation Council (GCC) countries and none on Kuwait. Considering that
each country has its specificities and there is no optimal CG model that fits all countries
(Abdallah and Ismail, 2017), this induces the research on how CG affects the future-oriented
disclosure in Kuwait. Second, unlike developed countries, there is no standardized format for
the contents of the annual reports of Kuwaiti firms. Besides, the future-oriented disclosure in
developing economies is more likely to be qualitative rather than quantitative forecasts. This
lack gives flexibility to corporate managers about the contents of reporting. Consequently,
significant variations exist between Kuwaiti firms about their practices of future-oriented
disclosure. This may also create an information asymmetry issue leading to the inefficient
allocation of firm resources (Buertey and Pae, 2021; Alazzani et al., 2017). The CG, in turn,
helps to solve this issue and enhance the transparency level (Hassanein and Elsayed, 2021).
Third, Boursa Kuwait has many differences from the major stock markets such as the US, the
UK and the European Union such as its size, number of investors, number of listed firms, CG
systems and ownership structures of firms. Kuwait’s degree of investor protection and
capital markets are still at the early stages of development compared to developed economies
(Alfraih and Almutawa, 2017). There is a concern about the transparency and accountability
of Kuwaiti firms, and enhancing the corporate credibility of reporting in Kuwait is
challenging (Dawd and Charfeddine, 2019). In sync with the New Kuwait 2035 strategic plan,
this study is essential for Boursa Kuwait to assess the newly issued CG system’s
effectiveness, a key feature sought after to attract investors to Kuwait.
The study contributes to the literature by being the first Kuwait-based evidence on how CG
mechanisms shape the disclosure of future-oriented information. It complements prior research
in developed economies such as the UK (Hassanein et al., 2019; Hassanein and Hussainey, 2015)
and the US (Li, 2010; Muslu et al., 2015). Our empirical results show that Kuwaiti firms with
larger board sizes and more significant institutional ownership provide a low level of futureoriented information. Conversely, firms with more independent directors and larger audit
committees are more inclined to disclose future-oriented information. These results provide
implications for policy setters in Kuwait to consider the importance of some CG mechanisms to
improve the transparency of Kuwaiti firms, as suggested in the NCL. Second, prior studies on
the usefulness of future-oriented disclosure focus on developed countries such as the UK
(Hassanein et al., 2019) and the US (Li, 2010; Muslu et al., 2015). Nevertheless, research on the
informativeness of future-oriented disclosure in developing economies is scarce. This study
enriches the existing literature by investigating this empirical issue in a developing economy
(i.e. Kuwait). The results suggest that future-oriented disclosure of Kuwaiti firms with fewer
institutional ownership or/and larger audit committees are likely to enhance the corporate
values. These results are helpful for policymakers and investors and in developing economies
in general and Kuwait in particular. Hence, Kuwaiti investors might be well-served to depend
on such specific CG mechanisms (e.g. firms with less institutional ownership or/and larger audit
committees) to develop their expectations about the firm’s value.
The rest of the study is structured as follows. Section 2 is dedicated to the background
about Kuwait context and develops the hypotheses. Section 3 details the research design to
measure the disclosure of future-oriented information and empirical modeling. Section 4
outlines the sample and its descriptive statistics. Section 5 presents the empirical results.
Section 6 presents further analyses. Section 7 provides concluding remarks.
2. Background and hypotheses
2.1 Corporate governance in Kuwait
Kuwait, an oil-rich civil law country, has taken significant steps to reform its CG system,
developed in 2009. In 2013, it introduced the New Companies Law (NCL), which is intended to
strengthen CG principles to Kuwaiti-listed firms through a set of 11 rules. It was effectively
applied in 2014. The NCL encourages Kuwaiti firms to provide full disclosure and more
transparency (Rules #4 and 7). It also requires firms to increase the number of qualified board
members (Rule #3) and recommends more non-executive and independent board members
(Rule #1). Furthermore, it requires firms to avoid the practice where the same person is the
chairman of the board and chief executive officer (Rule #2). Also, firms are required to form
internal audit committees (Rule #5). In connection with the NCL, the Kuwait Capital Markets
Authority (CMA) has issued a uniform CG framework for the firms it regulates.
The CG mechanisms are in the early stages of adoption and implementation, and Kuwait
has not developed many of them (Al-Shammari et al., 2008). For example, takeover policies are
infinitesimal, few directors are non-Kuwaiti, and few firms have organized audit committees.
Furthermore, Kuwaiti firms have low levels of disclosure despite complying with the rules
and regulations, resulting in weak transparency and accountability.
Based on the NCL rules, many studies (e.g. Al-Saidi and Al-Shammari, 2014; Al-Shammari
and Al-Sultan, 2010; Al-Shammari et al., 2008) characterize the CG system in Kuwait as follows.
First, the boards of directors include at least three directors appointed for a minimum of 3 years.
The NCL requires firms to have at least five directors. The directors must be qualified and have
no criminal record involving negligence, fraudulent bankruptcy, or breach of trust. They
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should own shares at least worth no less than the equivalent of 23,000 US dollars. Second, the
boards of directors are primarily family-controlled or dominated by large shareholders.
However, the new CG rules recommend including non-executives and independent members on
the corporate board. In most companies, a director acts as a CEO that reflects the issue of
duality. For family-controlled listed firms, the formal is for the father to be the chairman and the
son, or another family member, to be the CEO, or any similar combination. Most firms have nonexecutive directors and financial stakeholders represented on the board of directors. However,
they do not have enough influence on board decisions. The shareholder ownership of Kuwaiti
firms is concentrated in a few, which could be perceived as insider ownership and is most
commonly institutional or governmental ownership. The ownership structure in Kuwait has
many distinctive characteristics that are different from developed countries, such as the
significant institutional ownership, the stability of the ownership structure in most Kuwaiti
firms and the relatively small managerial ownership.
2.2 Theories, literature and hypotheses
This subsection develops hypotheses based on the relation between the disclosure of futureoriented information and the following CG mechanisms: the board’s size and independence
along with its CEO duality, institutional ownership and audit committee. We, then, develop
the hypotheses about the influence of CG on the association between future-oriented
information and corporate values.
2.2.1 Board size and future-oriented information. The quality of the board in the decisionmaking process is an inverse function of its size (Jensen and Meckling, 2012). This is because
board size reduces the practical cooperation and communication among board members
(Buertey and Pae, 2021; Hassanein and Kokel, 2019). In larger boards, some members do not
criticize management decisions (Akhtar et al., 2018). At the same time, other studies find that a
larger board has a diversity of experiences and subsequently has better quality monitoring
that is more effective than smaller ones (Klein, 2002).
The literature has mixed findings on how board size impacts voluntary disclosure. It finds
positive (Wang and Hussainey, 2013), negative (Elgammal et al., 2018) and insignificant
(Karamanou and Vafeas, 2005; Lakhal, 2005) associations between the two variables. The
NCL recommends that the board of directors of Kuwaiti firms be at least three members
allowing firms to select an appropriate size for their boards. Therefore, we may expect firms
with larger boards to gain greater diversity of experiences that enhance the quality of their
monitoring. Besides, the larger board is more representative of a broad group of stakeholders
(Alfraih and Almutawa, 2017), affecting the disclosure policies. Subsequently, we predict a
positive association between board size and future-oriented information. Nevertheless, we
predict an inverse relationship for the following: First, CG in Kuwait is still in its early
development stage, resulting in board members not capturing the importance of more
disclosure and being satisfied with low levels of information. Second, since insiders dominate
Kuwaiti corporate boards, they may be unwilling or less inclined to share information with
outsiders. The literature consistently documents negative relation between board size and
disclosure of voluntary information in Kuwait (Alfraih and Almutawa, 2017) and Qatar
(Elgammal et al., 2018). Therefore, we propose the following hypothesis:
H1. Board size inversely influences the disclosure of future-oriented information in the
annual reports of Kuwaiti firms.
2.2.2 Board independence and future-oriented information. The agency theory avers that
independent directors take an active monitoring role than other board members, leading to more
control over the opportunistic behavior of corporate managers (Jensen and Meckling, 2012).
Subsequently, independent board members improve firm performance, decrease opportunism,
lead to better quality earnings, and protect minority shareholders’ rights (Kim et al., 2007).
Furthermore, they reduce the information asymmetry issue (Goh et al., 2016). Yuen et al. (2009)
argue that independent directors balance corporate managers’ power and decrease the likelihood
of information withholdings.
Empirically, studies find significantly positive (Buertey and Pae, 2021), negative (Haniffa
and Cooke, 2005) and insignificant (Hoitash et al., 2009) effects of board independence on
voluntary disclosure. Similarly, some studies find mixed results for disclosing future-oriented
information in the UK (Hussainey and Al-Najjar, 2011; Wang and Hussainey, 2013) and
France (Lakhal, 2005). In Kuwait, the NCL is absent regarding the representative percent of
independent directors on the board. However, we expect firms with more independent
directors to be unwilling to support the management blindly. In turn, these firms would be
willing to disclosure more future-oriented information. Moreover, if independent board
members are the majority of the board, they may have enough clout and power to disclose
future-oriented information. Thus, we test the following hypothesis:
H2. Independent board members positively influence the disclosure of future-oriented
information in the annual reports of Kuwaiti firms.
2.2.3 CEO duality and future-oriented information. The CEO duality is a situation leading to
the dominance of the board of directors and management by one person. This situation harms
the control of the board of directors. The CEO’s duality leads to the absence of separation of
management and control decisions. As a result, this increases the opportunistic behavior of a
firm CEO (Krause et al., 2014). Despite these points, CEO duality may have a positive side to it.
The CEO should make relevant and timely decisions since they better know the firm,
resulting in a strong leadership style. Notably, the Kuwait NCL advises firms to avoid the
duality of the CEO.
The literature argues that CEO duality may lead to less inclination to share corporate
information with outsiders due to the desire for self-entrenchment (Brockmann et al., 2004).
This literature indicates either a significantly negative (Lakhal, 2005; Wang and Hussainey,
2013) or an insignificant (Elgammal et al., 2018) nexus between the two variables. To the best
of our knowledge, no study finds a positive association between CEO duality and voluntary
disclosure. Because of these findings combined with the fact that a firm director in Kuwait
acts as its CEO, we predict that CEO duality inversely affects the disclosure of future-oriented
information in Kuwait. This prediction leads to the following hypothesis:
H3. The CEO duality inversely influences the disclosure of future-oriented information in
the annual reports of Kuwaiti firms.
2.2.4 Institutional investor ownership and future-oriented information. There are two
opposing views in terms of institutional investors. Some studies find that they are active in
monitoring management performance (Jensen and Meckling, 2012). They significantly
influence corporate decisions and play a key role in CG by using their voting rights to steer
the board of directors’ decisions or influence the general shareholders’ meetings (Buertey and
Pae, 2021; Chung et al., 2019). Contrarily, some studies view them as myopic investors and are
less likely to engage with their investee firms (Hassanein et al., 2021a).
Empirically, the research finds no clear direction for the effect of institutional investors’
ownership on the disclosure of voluntary information. The US firms are likely to issue more
management earnings forecasts when institutional investors own more significant shares
(Karamanou and Vafeas, 2005). However, a negative association is found between
institutional ownership and disclosing future-oriented information in the UK (Wang and
Hussainey, 2013). In Kuwait, a large proportion of corporate ownership is controlled by
institutional investors. Alfraih and Almutawa (2017) argue that Kuwaiti firms with
significant family ownership are unwilling to disclose information voluntarily. They further
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explain that these firms can communicate information directly with family members.
Conversely, direct dissemination of future-oriented information with institutional investors is
costly. Thus, disclosing future information in firm annual reports is an efficient way to share
this information with various institutional investors. As a result, firms with more institutional
investors ownership would be willing to provide future-oriented information in their annual
reports. Thus, we test the following hypothesis:
H4. Institutional investors ownership positively influences the disclosure of futureoriented information in the annual reports of Kuwaiti firms.
2.2.5 Audit committee and future-oriented information. The audit committee enhances the
reliability of corporate reporting because it oversees the reporting process and monitors the
firm’s internal controls (Klein, 2002). It is claimed that an influential audit committee consists
of three to six members (Wallace and Zinkin, 2005). A smaller audit committee has limited
knowledge and expertise that can result in ineffective monitoring and control of the activities
of the agents (Cohen et al., 2014). However, a large audit committee has the advantage of
accessing a larger pool of knowledge and expertise, which increases the quality of the
monitoring process (Karamanou and Vafeas, 2005). Nevertheless, if the audit committee
becomes too large, its effectiveness will likely be affected because its members may dilute
their sense of responsibility, resulting in inadequate quality monitoring.
The research finds that firms with a larger audit committee size provide more voluntary
disclosure (Barako et al., 2006; Yuen et al., 2009; Al-Shammari and Al-Sultan, 2010).
Notwithstanding, other studies find that it harms voluntary disclosure (Klein, 2002). In
Kuwait, the CG system is characterized by a few audit committees. Thus, given the influence
of larger audit committees, we predict that Kuwaiti firms with larger audit committees have
more knowledge and expertise, which improves corporate reporting. Abad and Bravo (2018)
reveal that US firms with knowledgeable audit committees disseminate future-oriented
information. Therefore, the following hypothesis is formulated:
H5. The size of audit committees positively influences the disclosure of future-oriented
information in the annual reports of Kuwaiti firms.
2.2.6 Future-oriented information, corporate governance and firm value. Disclosure is likely to
affect the investors’ views about firms which are reflected in their valuations (Hassanein, 2022).
Future-oriented disclosure facilitates investors to develop prospects about corporate future
cash flows that affect their valuation about it (Hassanein and Hussainey, 2015). Furthermore, it
decreases the information asymmetry issue, as averred by the agency theory. As a result, as the
uncertainty linked to a firm’s future performance lessens, the disclosure positively affects the
share price, thus the firm’s value. The agency theory also views the CG mechanisms as effective
means regulating the managers’ opportunistic behavior, hence mitigating the conflicts between
corporate managers and investors (Jensen and Meckling, 2012). Consequently, firm value is
more likely to be enhanced (Hassanein et al., 2019). Empirical research documents a positive
influence of CG on the value of a firm (e.g. Bennouri et al., 2018).
Literature reports a value relevance for the future-oriented disclosure. For instance, Kim
and Shi (2011) reveal that cost of equity capital is decreased with the disclosure of
management earnings forecasts by US firms. In addition, other studies find that disclosing
this information helps expect earnings in the UK (Hussainey et al., 2003). Recently, Hassanein
et al. (2019) found that UK firms with more future-oriented information are higher in their
values. Moreover, their results show that future-oriented information is perceived as value
relevant for big four clients and low-performance firms. Therefore, we expect future-oriented
disclosure of Kuwaiti firms to have value relevance to Kuwaiti investors and affect their
corporate valuations.
Rare are the studies on the effect of CG on the value relevance of future-oriented information.
The research findings indicate that UK firms with sound CG systems disclose future-oriented
information containing relevant information for investors (Wang and Hussainey, 2013).
Recently, Hassanein and Elsayed (2021) found that UK firms with sound CG systems provide
informative risk information to their investors. Research on how CG could affect the value
relevance of future-oriented information in Kuwaiti firms is absent. Hence, we fill this research
gap by investigating how well-governed Kuwait firms’ future-oriented information affects their
values. We expect disclosure of future-oriented information of well-governed firms to be
informative about their values. Therefore, we develop the following:
H6. The disclosure of future-oriented information by better-governed firms is more likely
to enhance their values.
3. Research design
3.1 Measuring future-oriented information
The computer-based content analysis technique is utilized to measure future-oriented
information in the annual reports of Kuwaiti-listed firms. The research has used this
technique (e.g. Hassanein, 2022; Hassanein et al., 2019; Hassanein and Hussainey, 2015; Li,
2010) since it helps code a large sample of reports that facilitate the generalization of the
results and increases the reliability of the inferences made. Our study uses a sentence rather
than a word as the unit of coding analysis as it results in a reliable, complete, and meaningful
focus on a specific aspect of the data set (Hassanein, 2022).
We follow Hassanein and Hussainey (2015) and use 33 future-related keywords, including “aim,
anticipate, believe, coming, estimate, eventual, expect, following, forecast, forthcoming, future, hope,
incoming, intend, intention, likely, look-ahead, look-forward, next, plan, predict, project, prospect,
seek, shortly, soon, subsequent, unlikely, upcoming, well-placed, well-positioned, will, and yearahead.” Further, the QSR coding software package is used to develop a more restricted structure for
the keywords. First, we use more complex forms for the keywords. For instance, instead of only
searching for the word “expect,” the search includes: “expect,” “expects,” “is expecting,” “are
expecting,” “is expected” and “are expected.” This approach reduces the likelihood of
misinterpreting statements as future-oriented when they are not. Second, as per research (e.g.
Muslu et al., 2015), adjectives, such as “next, coming, incoming, upcoming, forthcoming, following,
and subsequent”, are linked with time indicators such as “fiscal, month(s), quarter(s), year(s),
period(s), and six months or 12 months.” Third, we use verb conjugations to limit the possibility of
capturing noun forms of the verbs mentioned earlier. For example, instead of searching for the word
“plan,” we search for “we expect to plan” or/and “we are planning to.” Finally, numerical time
references are added to the search; for example, 2018 or 2019 is added to the search of annual reports
preceding that year (i.e. 2017).
A random sample of five annual reports from each year is selected to evaluate the score’s
reliability for future-oriented information. The scores for future-oriented information are
calculated for the random sample manually by a research assistant and computerized
through the QSR coding software package. The Pearson correlation assesses the correlation
between manual and automated codings scores. The Pearson coefficient of 0.926 indicates
that the scores are significantly correlated at a 0.01 level. Hence, the computer-generated
score of future-oriented information is reliable.
3.2 Empirical modeling
3.2.1 Corporate governance’s effect on future-oriented information. We control for variables
that may affect voluntary disclosure/future-oriented information. The literature shows either
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no relation (Karamanou and Vafeas, 2005) or a positive relation (Menicucci, 2018;
Lakhal, 2005) between firm size and voluntary disclosure. Besides, prior research reports
in-significant (Barako et al., 2006), negative (Menicucci, 2018; Hoitash et al., 2009) or positive
(Haniffa and Cooke, 2005) relation between firm profitability voluntary disclosure. In
addition, previous studies find a positive relation between firm liquidity and voluntary
disclosure (Mahboub, 2019). Furthermore, firm leverage has either a negative (Gul and Leung,
2004) or a positive (O’Sullivan et al., 2008) effect on future-oriented disclosure. Research also
documents a positive relationship between firm dividends and future-oriented disclosure
(Hussainey and Al-Najjar, 2011).
The following Model is used to test H1, H2, H3, H4 and H5.
Future DISit ¼ β0 þ β1 BSit þ β2 BIN %it þ β3 CEO Dulit þ β4 INST%it þ β5 AUDITit
þ β6 FSizeit þ β7 FProfit þ β8 FLiqit þ β9 FLevit þ β10 FDivit þ Year FE
þ Industry FE þ ε
(1)
The Future DISit is the dependent variable, representing the score of future-oriented
information for firm i in year t measured as explained in Section 3.1. The independent
variables comprise CG and control variables. The CG variables are the board size (BS), board
independence (BIN%), CEO duality (CEO_Dul), institutional ownership (INST%) and audit
committee size (AUDIT). The control variables are firm size (FSIZE), profitability level
Variable
Symbol
Definition
Future-oriented
disclosure
Future_DIS
Firm value
F_TQ
The score of each Kuwaiti firm is the natural logarithm of the total
frequency of future-oriented sentences in its annual report. Details
of measuring the Future_ DIS is presented in Section 3.1
The Tobin’s Q ratio of Kuwaiti firm at three months after its annual
report date
The industry medium adjusted Tobin’s Q ratio, which is the
Tobin’s Q ratio of the Kuwaiti firm after excluding the median
Tobin’s Q of its industry in the observation year
The market value of firm equity to its book value at three months
after the annual report date
The number of directors on of the firm at the end of each year
The number of independent directors divided by the total number
of directors in a firm board of directors
Dummy variable with a value of 1 if the chairman and CEO is the
same and 0 otherwise
The number of outstanding shares owned by institutional
investors divided by the total outstanding shares of a company at
the end of each year
The number of members in a firm audit committee at the end of
each year
The natural logarithm of a total firm asset at the end of each year
The return on equity ratio of a firm at the end of each year
The current ratio of a firm at the end of each year
The ratio of a firm debt to its equity at the end of each year
The dividend yield ratio of a firm at the end of each year
The growth rate in revenue of a firm at the end of each year
The ratio of firm capital expenditure to its assets at the end of each
year
IA_TQ
MK-BV
Table 1.
Definitions of variables
Board size
Board independence
BS
BIN%
CEO duality
CEO_Dul
Institutional investors’
ownership
INST%
Audit committee
AUDIT
Firm size
Profitability
Liquidity
Leverage
Dividend
Growth rate
Capital expenditure
FSize
FProf
FLiq
FLev
FDiv
FGrth
FCapEx
(FProf), liquidity (FLiq), leverage (FLev) and dividend (FDiv). Table 1 presents the
measurements of all variables.
3.2.2 Future-oriented information, corporate governance and firm value. To assess how CG
and disclosing future-oriented information separately and jointly affect firm value, we control
for the variables affecting the value of a firm. Prior research findings indicate positive (Liu
et al., 2012) and negative (Ammann et al., 2011) relations between the size of a firm and its
value. In addition, research indicates a positive impact of firm profitability on its value
(Hassan et al., 2009). Likewise, liquidity enhances firm value (Liu et al., 2012). Furthermore,
firm leverage may impact the firm value negatively (Ammann et al., 2011). Moreover, research
suggests that firm dividends enhance its value (Arnott and Asness, 2003). Similarly, the
growth of a firm increases its value (Henry, 2008). We also control for capital expenditure as it
may have either a positive (Weir et al., 2002) or a negative (Mangena et al., 2012) effect on
firm value.
To explore the effect of future-oriented information and CG mechanisms separately and
jointly on firm value, we first develop Model (2) by regressing firm value on future-oriented
information and control variables without considering the effect on CG mechanisms as follows:
F TQit ¼β0 þ β1 Future DISit þ β2 FSizeit þ β3 FProfit þ β4 FLiqit þ β5 FLevit
þ β6 FDivit þ β7 FGRTHit þ β8 CapExit þ Year FE þ Industry FE þ ε
(2)
The dependent variables in the F TQit representing the value of firm i at year t that is
measured by as a natural logarithm of the ratio of Tobin’s Q at three months after the annual
report release date. The independent variables are firm size (FSIZE), profitability level
(FProf), liquidity (FLiq), leverage (FLev) and dividend (FDiv).
Second, we develop Model (3) by adding the CG mechanisms to examine the effect of both
future-oriented information and CG on the value of a firm, as follows:
F TQit ¼ β0 þ β1 Future DISit þ β2 BSit þ β3 BIN %it þ β4 CEO Dulit þ β5 INST%it
þ β6 AUDITit þ β7 FSizeit þ β8 FProfit þ β9 FLiqit þ β10 FLevit þ β11 FDivit
þ β12 FGrthit þ β13 CapExit þ Year FE þ Industry FE þ ε
(3)
Third, we develop Model (4) to depict how the future-oriented information of a firm with good
governance mechanisms can affect its value. Model (4) introduces interaction variables
between CG mechanisms and future-oriented information.
F TQit ¼ β0 þ β1 Future DISit þ β2 BSit þ β3 BIN %it þ β4 CEO Dulit þ β5 INST%it
þ β6 AUDITit þ β7 BSit 3 Future DISit þ β8 BIN %it 3 Future DISit
þ β9 CEO Dulit 3 Future DISit þ β10 INST%it 3 Future DISit
þ β11 AUDITit 3 Ffuture DISit þ β12 FSizeit þ β13 FProfit þ β14 FLiqit þ β15 FLevit
þ β16 FDivit þ β17 FGrthit þ β18 CapExit þ Year FE þ Industry FE þ ε
(4)
where BSit 3 FL DISit is the interaction variable between board size and future-oriented
information; BIN %it 3 FL DISit is the interaction between board independence and futureoriented information; CEO Dulit 3 FL DISit is the interaction between CEO duality and
future-oriented information; INST%it 3 FL DISit is the interaction between institutional
Futureoriented
disclosure in
Kuwait
JAAR
ownership and future-oriented information; AUDITit 3 FL DISit is the interaction between
audit committee size and future-oriented information.
The models’ parameters are estimated using an ordinary least squares (OLS) regression
while controlling for year and industry fixed effects. The CG and future-oriented information
variables are centralized before developing the interactional variables. The extreme values,
above and below two standard deviations, have been eliminated from the analyses.
4. Sample and descriptive statistics
The sample comprises the non-financial Kuwaiti firms listed on the Boursa Kuwait from 2014
through 2018. It starts in 2014 because the NCL is effective for annual reports for 2014 and
ends with the most available annual reports. The primary sample consists of 870 firm-year
observations (174 firms). We then exclude financial firms [1] (305 firm-year observations)
from the analysis because of their unique regulations. Likewise, we exclude ten firm-year
observations as their annual reports could not be converted into a text file that the QSR N6
coding software can read. We also exclude 21 observations due to missing CG and financial
data. Hence, the final sample includes 534 observations. The corporate annual reports are
downloaded from the official websites of the listed firms. The CG and financial data are
collected from the Eikon DataStream.
The descriptive statistics are shown in Table 2. The score of future-oriented information
ranges from 4 [2.7182818^1.416] to 41 [2.7182818^3.724], with a mean value of 12
[2.7182818^2.485] statements. This range indicates a relatively low level of future-oriented
disclosure of Kuwaiti-listed companies. This could be because the CG system in Kuwait is still
in its early development and implementation stages, which do not fully capture the
importance of disclosing information. The Table also shows that the average corporate value
is 6.864, its minimum value is 8.543, and its maximum value is 47.876, indicating potentially
significant variations in the corporate values of Kuwaiti firms.
Table 2 also reveals that a corporate board’s average size is 8 (7.69), ranging from 4 to
14 directors. This is above the average board size as per the studies of the GCC (Alfraih
and Almutawa, 2017) and indicates that firms are taking steps to increase their board
sizes as suggested by the NCL. The mean value of independent directors is 31%, with
values ranging from 0 to 47.5%. This is a strong indicator of the absence of independent
board members in several listed Kuwaiti firms. In addition, Table 2 shows that 58% of the
CEOs in the sampled Kuwaiti firms have dual roles. Although this percentage is relatively
Table 2.
Descriptive statistics
Future_DIS
F_TQ
BS
BIN%
CEO_Dul
INST%
AUDIT
FSize
FProf
FLiq
FLev
FDiv
FGrth
FCapEx
Mean
Standard deviation
Minimum
25%
Median
75%
Maximum
2.485
6.864
7.69
0.314
0.58
0.361
2.642
6.937
30.479
2.440
69.228
2.901
8.244
0.046
0.863
3.284
2.414
0.965
0.705
0.704
0.873
0.576
12.413
1.238
31.905
1.723
2.159
0.043
1.416
8.543
4.00
0.00
0.000
0.000
1.000
5.594
10.730
0.210
44.470
0.000
12.620
0.000
1.492
2.3371
6.00
0.250
0.000
0.184
1.162
6.501
9.575
1.770
29.578
1.830
7.945
0.015
2.168
10.735
9.00
0.375
1.000
0.298
2.862
6.883
17.015
3.130
57.685
2.800
17.460
0.034
2.793
26.941
12.00
0.415
1.000
0.382
4.762
7.370
28.830
7.593
120.608
4.010
26.348
0.063
3.724
47.876
14.00
0.475
1.000
0.463
6.000
8.482
76.850
12.310
208.910
8.250
37.820
0.372
below that reported by Alfraih and Almutawa (2017), CEO duality is still common
practice in Kuwaiti firms. Institutional investors own, on average, 36% of the outstanding
shares of the Kuwaiti-listed firms. The average size of an audit committee is 3 (2.642)
members, and it ranges from 1 to 6. Having an audit committee was optional before
introducing the new CG in 2013, which prioritized the presence of audit committees from
2014 and onwards.
Table 3 shows a significant correlation between the future-oriented information and
some mechanisms of CG. The Future_DIS is positively associated with independent
directors (BIN%) and the size of the audit committee (AUDIT). On the other hand, it is
adversely correlated with a board size (BS) and institutional investors (INST%).
Furthermore, the score is positively correlated with the firm value (F_TQ). This
correlation conveys that firms disclosing more future-oriented information have higher
values. Also, Future_DIS is significantly associated positively with the firm’s size (FSize),
profitability (FProf), dividends (FDiv) and growth rate in sales (FGrth). However, it is
adversely correlated with liquidity (FLiq). These results strengthen the validity of the
Future_DIS measure, as indicated in the research (Brown and Tucker, 2011; Hassanein
et al., 2019). Notably, the Pearson coefficients are below 0.80, suggesting an absence of
multicollinearity issue (Gujarati and Porter, 2009).
5. Empirical results
5.1 Corporate governance’s effect on future-oriented information
In Table 4, we present the results of Model (1). In panel [1], we show the results of regressing
the future-oriented information on the control variables only without considering the effects
of the CG mechanism. Panel [2] shows the results for the five CG mechanisms individually.
Panel [3] shows the results by incorporating all mechanisms in one Model. The Model has a
significance level of 1% (p < 0.01) in all panels. The adjusted R-squared value is 35% in Panel
[1], and it ranges from 35.931% to 40.769 46% in Panel [2] based on the mechanism of CG. It
becomes 46.429% when we add all CG mechanisms to one Model, as shown in Panel [3]. These
results indicate a good fit for the Model in all panels that CG mechanisms explain variations in
Kuwaiti listed firms’ level of future-oriented information. The coefficient for the CG
mechanisms in Panel [2] varies from statistically insignificant (Bs & CEO_Dul) to
significantly positive (BIN% & AUDIT) and to significantly negative (INST%). The
variations in the results become even more pronounced when we add all mechanisms to one
regression model, as shown in Panel [3]. We consider Panel [3] as our main results, as
explained next.
The coefficient for BS is 0.828 (t 5 1.738), meaning that firms with larger boards
disclose low levels of future-oriented information, which supports H1. It confirms the view of
the agency theory that larger boards lack effectiveness in decision-making (Jensen and
Meckling, 2012). Moreover, it confirms the perception that insiders dominate corporate
boards in Kuwait, and they are less willing to disclose information to outsiders. The result
complements the research in Kuwait that finds that board size adversely affects the level of
voluntary disclosure (Alfraih and Almutawa, 2017). Conversely, the coefficient for IND% is
1.359 (t 5 2.841), indicating that independent directors positively influence the disclosure of
future-oriented information. The result supports H2. It supports the perspective that
independent directors reduce the information asymmetry issue and subsequently enhance
the levels of disclosure (Goh et al., 2016). It is consistent with the research findings of the UK
(Hussainey and Al-Najjar, 2011; Wang and Hussainey, 2013) and France (Lakhal, 2005).
However, the CEO_Dul does not have a statistically significant relation with Future_ Dis
(β 5 0.091, t 5 0.663). Thus, we reject H3. This result does not align with the agency theory
argument that having one person dominate the board of directors reduces its effective control
Futureoriented
disclosure in
Kuwait
(2)
(3)
(4)
(5)
(6)
(7)
1
0.406***
1
(0.000)
(3) BS
0.271**
0.062
1
(0.022)
(0.359)
(4) BIN%
0.143***
0.189*** 0.281**
1
(0.003)
(0.000)
(0.037)
(5) CEO_Dul
0.030
0.013
0.052
0.002
1
(0.543)
(0.787)
(0.268)
(0.972)
(6) INST%
0.198*** 0.098*
0.129*** 0.205*** 0.058
1
(0.000)
(0.065)
(0.005)
(0.000)
(0.214)
(7) AUDIT
0.183**
0.140*
0.379***
0.451***
0.134*** 0.118*
1
(0.027)
(0.073)
(0.000)
(0.000)
(0.004)
(0.051)
(8) FSize
0.425***
0.475**
0.517***
0.583***
0.053
0.216*** 0.304***
(0.000)
(0.000)
(0.000)
(0.000)
(0.261)
(0.000)
(0.000)
0.017
0.014
0.019
(9) FProf
0.275***
0.103*** 0.038
0.004
(0.930)
(0.726)
(0.763)
(0.692)
(0.000)
(0.005)
(0.428)
(10) FLiq
0.136*** 0.105**
0.192*** 0.178*** 0.021
0.006
0.158***
(0.005)
(0.014)
(0.000)
(0.000)
(0.655)
(0.896)
(0.001)
(11) FLev
0.015
0.069
0.105*
0.042
0.022
0.035
0.034
(0.608)
(0.138)
(0.065)
(0.375)
(0.644)
(0.456)
(0.464)
(12) FDiv
0.127**
0.102*
0.199**
0.233***
0.084
0.053
0.137***
(0.037)
(0.058)
(0.038)
(0.000)
(0.085)
(0.274)
(0.005)
0.176***
0.107*
0.068
0.074
(13) FGrth
0.021*
0.160*** 0.162***
(0.001)
(0.000)
(0.052)
(0.144)
(0.110)
(0.069)
(0.000)
(14) FCapEx
0.063
0.137**
0.648*
0.293
0.220
0.292
0.640**
(0.246)
(0.019)
(0.073)
(0.355)
(0.492)
(0.357)
(0.025)
Note(s): *, **, *** means correlation between variables is significant at 10%, 5% and 1% levels, respectively
Table 3.
Correlation analysis
(1) Future_DIS
(2) F_TQ
(1)
0.026
(0.589)
0.141***
(0.002)
0.090
(0.054)
0.525***
(0.000)
0.091*
(0.054)
0.409
(0.187)
1
(8)
0.034
(0.473)
0.049
(0.307)
0.010
(0.846)
0.066
(0.164)
0.414
(0.206)
1
(9)
0.063
(0.178)
0.383***
(0.000)
0.088*
(0.063)
0.304
(0.337)
1
(10)
0.144***
(0.003)
0.011
(0.812)
0.377
(0.227)
1
(11)
0.008
(0.868)
0.401
(0.197)
1
(12)
0.424
(0.169)
1
(13)
1
(14)
JAAR
Coefficients
(t-statistics)
Coefficients
(t-statistics)
BS
0.157 (1.428)
BIN%
þ
1.548*** (3.236)
CEO_Dul
INST%
þ
AUDIT
þ
FSize
þ
2.819*** (3.217)
3.138*** (5.137)
2.261*** (4.174)
FProf
þ/
2.486*** (3.016)
1.473 (1.213)
2.832*** (3.435)
FLiq
þ/
0.988 (0.505)
1.380 (0.738)
1.125 (0.475)
FLev
þ/
0.726 (1.152)
1.014* (1.679)
0.827 (1.312)
FDiv
þ/
1.583** (2.030)
2.251*** (2.836)
1.803** (2.312)
Intercept
3.487*** (3.910)
4.871*** (5.462)
3.972*** (4.453)
Year-FE
Yes
Yes
Yes
Industry-FE
Yes
Yes
Yes
F-test
6.375***
8.916***
7.261***
Adjusted R-Squared
34.751
36.147
39.581
Tolerance
0.528
0.538
0.501
Observation
534
534
534
Note(s): *, **, *** means coefficient is significant at 10%, 5% and 1% levels, respectively
Pred. Sign
(1)
Coefficients
(t-statistics)
3.307*** (4.153)
1.916** (2.318)
1.159 (0.592)
0.852 (1.351)
1.257 (1.381)
4.093*** (4.586)
Yes
Yes
7.478***
35.963
0.519
534
0.107 (0.778)
(2)
Coefficients
(t-statistics)
3.174*** (4.182)
3.326*** (4.035)
1.322 (0.671)
0.971 (1.541)
2.164** (2.216)
4.618*** (5.232)
Yes
Yes
8.531***
40.197
0.506
534
1.379*** (3.094)
Coefficients
(t-statistics)
1.147** (2.093)
2.628*** (3.843)
3.274*** (3.972)
1.301 (0.695)
0.956 (1.517)
2.085** (2.374)
4.592*** (5.149)
Yes
Yes
8.396***
40.769
0.595
534
Coefficients
(t-statistics)
0.828* (1.738)
1.359** (2.841)
0.091 (0.663)
1.031** (2.275)
1.618*** (3.485)
3.582*** (4.739)
2.083*** (3.451)
0.727 (0.336)
0.817 (0.916)
1.126** (2.281)
2.819*** (3.161)
Yes
Yes
7.291***
46.429
0.573
534
(3)
Coefficients
(t-statistics)
Futureoriented
disclosure in
Kuwait
Table 4.
Impact of CG
mechanisms on
Future_ DIS
JAAR
(Jensen and Meckling, 2012). Furthermore, the INST% coefficient is 1.031 (t 5 2.275),
indicating that firms with greater ownership by institutional investors are unwilling to disclose
future-oriented information. Thus, we reject H4. The result supports institutional investors’
myopic and short-term views (Hassanein et al., 2021a). This short-term view induces firm
managers in Kuwait to disclose less future-oriented information, particularly in higher
institutional ownership. This result is different from prior studies in the UK, which find
insignificant between the two variables (Wang and Hussainey, 2013). Finally, the coefficient for
AUDIT is 1.618 (t 5 3.485), supporting the H5. The result is in sync with the proposition that a
large audit committee is expected to have diversified knowledge and expertise, improving the
quality of the monitoring process (Karamanou and Vafeas, 2005) and enhancing the disclosure
of voluntary information (Barako et al., 2006).
Regarding control variables, the results are consistent with the previous studies. Our
results show that larger Kuwaiti firms disclose more future-oriented information, supporting
previous research (Wang and Hussainey, 2013). Besides, firms with higher profitability
disclose more future-oriented information, as evidenced in previous research (Haniffa and
Cooke, 2005). Moreover, firm dividends positively affect the disclosure of future-oriented
information, which supports the literature (Hussainey and Al-Najjar, 2011).
Pred. Sign
Table 5.
Future_DIS, CG and
firm value
(1)
Model [2]
Coefficients
(t-statistics)
(2)
Model [3]
Coefficients
(t-statistics)
(3)
Model [4]
Coefficients
(t-statistics)
Future_DIS
þ
1.349*** (2.741)
2.158*** (3.179)
1.537*** (2.619)
BS
þ
0.114 (1.105)
0.085 (0.972)
BIN%
þ
0.886** (2.049)
0.835** (2.014)
CEO_Dul
þ
0.058 (0.621)
0.042 (0.546)
INST%
þ
0.853** (2.091)
0.631** (1.974)
AUDIT
þ
1.431*** (2.674)
1.285*** (2.652)
FL_DIS 3 BS
þ
0.018 (1.039)
FL_DIS 3 BIN%
þ
0.014 (1.153)
FL_DIS 3 CEO_Dul
þ
0.010 (0.372)
FL_DIS 3 INST%
þ
0.096** (2.463)
FL_DIS 3 AUDIT
þ
0.138*** (2.738)
FSize
þ
2.315*** (3.948)
2.418*** (3.635)
2.357*** (3.497)
FProf
þ/
1.937*** (3.198)
1.503*** (3.029)
1.815*** (3.104)
FLiq
þ/
0.283 (0.437)
0.286 (0.264)
0.203 (0.232)
0.630** (2.318)
1.094*** (2.817)
0.793** (2.437)
FLev
þ/
FDiv
þ/
0.843** (2.610)
1.193*** (3.202)
0.865** (2.516)
FGrth
þ/
1.109*** (3.198)
1.089* (1.657)
1.352*** (3.216)
FCapEx
þ/
0.553 (1.231)
0.978 (1.362)
0.709 (1.198)
Intercept
2.765*** (3.172)
3.184*** (3.914)
2.597*** (3.486)
Year-FE
Yes
Yes
Yes
Industry-FE
Yes
Yes
Yes
F-test
13.385***
14.518***
12.738***
Adjusted R-Squared
23.641
26.513
28.639
Tolerance
0.539
0.513
0.486
Observation
534
534
534
Note(s): *, **, *** means coefficient is significant at 10%, 5% and 1% levels, respectively
5.2 Future-oriented information, corporate governance and firm value
Table 5 reports the estimation results for the associations between future-oriented
information, CG mechanisms and firm value. Panel (1) presents the estimation of Model [2]
in which we regress the Future_DIS on F_TQ without considering the effects of CG
mechanisms, while Panel (2) shows the results from Model [3] in which we additionally
consider the effects of CG mechanisms. Panel (3) reveals the results for Model [3], which
includes the interaction variables between Future_DIS and CG mechanisms. The models are
significant (p < 0.01). The R-squared is 23.641% in Panel (1), 26.513% in Panel (2) and
28.639% in Panel (3), which indicates a good overall fit for all models in explaining the
variations in the values of Kuwaiti listed firms.
The coefficient for Future_DIS is 1.349 (t 5 2.741) in Model [2] and is increased to 2.158
(t 5 3.179) after adding CG mechanisms to Model [3]. It then becomes 1.537 (t 5 2.619) after
adding interaction variables in Model [4]. These values indicate that disclosures of futureoriented information increase the values of Kuwaiti firms. This is because future-oriented
information alleviates information asymmetry and helps investors formulate views about the
company’s future cash flows. As a result, the ambiguity linked to the company’s future
performance is diminished, affecting the share price positively, thus the company’s value. It
adds to UK research on future-oriented information and firm value (Hassanein et al., 2019;
Hassanein and Hussainey, 2015).
The effects of CG mechanisms on the firm value are shown in Models [3] and [4]. The
results are qualitatively similar in both models. They show that board independence (BIN%)
and the size of the audit committee (AUDIT) positively affect the value of a firm. However,
they provide evidence that firm value is an inverse function of institutional investors’
ownership (INST%). On the other hand, their results indicate that both board size (BS) and
CEO role duality (CEO_Dul) do not affect Kuwaiti firms’ value. The results go in the same line
with empirical research documenting substantial effects of some CG on corporate values (e.g.
Bennouri et al., 2018).
Panel (3) presents Model [4] results, including the interaction variables between futureoriented information and CG mechanisms. It shows that the coefficients for Future_DIS 3 BS
(β 5 0.018; t 5 1.039), FL_DIS 3 BIN% (β 5 0.014; t 5 1.153) and FL_DIS 3 CEO_Dul
(β 5 0.010; t 5 0.372) are not statistically significant. These results reveal that the board’s
size, independence, and CEO duality do not affect the positive association between futureoriented information and the values of Kuwaiti firms.
On the other hand, the coefficient for FL_DIS 3 INST% is significant at the 5% level
(β 5 0.096; t 5 2.463), which indicates institutional investors’ ownership decreases the
positive relation between future-oriented information and firm value. This supports the
myopic and short-term view of institutional investors in Kuwait. Moreover, the coefficient for
FL_DIS 3 AUDIT is significant at the 1% level (β 5 0.138; t 5 2.738), indicating that the size
of the audit committee increases the positive relation between future-oriented information
and the value of Kuwaiti firms. This confirms that larger audit committees in Kuwait have the
advantages of their members’ diversified knowledge and skillsets, which improve the quality
of information. The results for H6 confirm the findings of the UK study by Wang and
Hussainey (2013) in which the FL_DIS of well-governed firms contains value-relevant
information for investors.
6. Additional analyses
6.1 Sensitivity analysis test
Studies have argued that the value of a firm varies significantly over industries (Hassanein
and Hussainey, 2015). In response, we calculate an industry medium adjusted Tobin’s Q
(IA_TQ) as a proxy for firm value. This measure reduces the industry bias (Hassanein and
Futureoriented
disclosure in
Kuwait
JAAR
Hussainey, 2015). Table 1 details the calculation of IA_TQ. We, additionally, employed the
ratio of market to book value of firm equity (MK-BV) as a proxy for firm value as per literature
(Hassan et al., 2009).
We re-estimate Model [4] using the IA_TQ and MK-BV as dependent variables. Table 6
shows that the Model is significant (p < 0.01), and the adjusted R-Squared values reveal that
variations in the values of Kuwaiti firms can be explained by Model [4]. The loadings on the
future-oriented information, CG mechanism, and interaction variables provide qualitatively
similar results to that reported in the primary analyses, as shown in Table 5.
6.2 Endogeneity test
The presence of endogeneity among variables reduces the validity of regression results, as
indicated in the disclosure literature (e.g. Nikolaev and van Lent, 2005). It occurs for two
reasons, omitted variable bias and simultaneity. It is suggested that the control variables and
fixed effects in the regression model reduce the omitted variable bias (Brown et al., 2011; Li,
2010). We have added the control variables to the empirical models of this study. In Model [1],
we have added the firm-specific characteristics that may affect the disclosure of futureoriented information [FSize, FProf, FLiq, FLev, & FDiv]. In addition, in Models [2, 3, & 4], we
have added the factors influencing corporate value [FSize, FProf, FLiq, FLev, FDiv, FGrth, &
FCapEx]. Furthermore, we have used the year and industry fixed effects.
Model [4]
Dependent variable
Pred. Sign
Table 6.
Sensitivity analysis
results
IA_TQ
Coefficients (t-statistics)
MK-BV
Coefficients (t-statistics)
Future_DIS
þ
1.213** (2.281)
1.519** (2.352)
BS
þ
0.067 (0.771)
0.083 (0.911)
BIN%
þ
0.609* (1.759)
0.726* (1.892)
CEO_Dul
þ
0.035 (0.433)
0.046 (0.512)
INST%
þ
0.394* (1.714)
0.468* (1.852)
AUDIT
þ
1.105*** (2.607)
1.261*** (2.941)
FL_DIS 3 BS
þ
0.016 (0.824)
0.012 (0.574)
FL_DIS 3 BIN%
þ
0.011 (0.814)
0.013 (1.003)
FL_DIS 3 CEO_Dul
þ
0.001 (0.295)
0.001 (0.349)
FL_DIS 3 INST%
þ
0.053** (2.053)
0.061** (2.308)
FL_DIS 3 AUDIT
þ
0.102** (2.171)
0.117** (2.536)
FSize
þ
1.869*** (2.735)
2.209*** (2.946)
FProf
þ/
1.839*** (2.761)
2.701*** (3.208)
FLiq
þ/
0.164 (0.184)
0.190 (0.217)
FLev
þ/
0.629** (2.006)
0.743** (2.371)
FDiv
þ/
0.659** (2.293)
0.813** (2.438)
FGrth
þ/
0.719** (2.308)
1.031*** (3.013)
FCapEx
þ/
0.463 (0.950)
0.619 (1.123)
Intercept
4.059*** (2.764)
5.453*** (3.261)
Year FE
Yes
Yes
Industry FE
No
Yes
F-test
10.194***
11.936***
R squared
22.751
24.835
Tolerance
0.473
0.509
Observation
534
534
Note(s): *, **, *** means coefficient is significant at 10%, 5% and 1% levels, respectively
Endogeneity can also arise due to simultaneity, where a bi-directional relation exists
between variables (Lopes and de Alencar, 2010). Lagged variables help reduce this issue
(Derouiche et al., 2020; Weir et al., 2002). We re-run Model [1] by regressing future-oriented
information score in year t on the CG mechanisms and control variables in year t-1. Similarly,
we re-estimate Model [4] by regressing the firm value proxy (F_TQ) in year t on the futureoriented information score, CG mechanisms, and the control variables in year t-1.
The results for Models [1] and [4] are demonstrated in Table 7 in Panels A and B,
separately. The coefficients for the lagged values in Panel A indicate qualitatively similar
findings to the main results of Table 4. Furthermore, the lagged results in Panel B are
consistent with the primary results displayed in Table 5. They provide supporting evidence
that the disclosure of future-oriented information enhances the values of Kuwaiti firms,
especially in firms with less institutional ownership and larger audit committees.
Futureoriented
disclosure in
Kuwait
7. Conclusion
Kuwait has taken significant steps to reform its CG system by introducing the NCL in 2013.
The current study has examined the effect of the observable reform of CG on the disclosure of
future-oriented information. Likewise, it has explored how CG mechanisms affect the
informativeness of this information. We have used a sample of Kuwaiti-listed non-financial
firms over five years from 2014 to 2018. The results indicate that Kuwaiti non-financial firms
disclose low levels of future-oriented information in their annual reports, and different CG
mechanisms influence this level of disclosure. The empirical results support H1 and find that
Model [1]
Dependent variable: Future_DIS
Coefficient (t-statistics)
BS
BIN%
CEO_Dul
INST%
AUDIT
FSize
FProf
FLiq
FLev
FDiv
Intercept
Model [4]
Dependent variable: F_TQ
Coefficient (t-statistics)
0.594* (1.683)
1.253** (2.416)
0.085 (0.621)
0.962** (2.132)
1.149*** (2.975)
3.316*** (4.042)
1.952*** (3.238)
0.681 (0.115)
0.718 (0.853)
1.741** (2.137)
2.641*** (4.163)
Future_DIS
1.348** (2.019)
BS
0.074 (0.896)
BIN%
0.608* (1.852)
CEO_Dul
0.035 (0.483)
INST%
0.538* (1.719)
AUDIT
0.916** (2.473)
FL_DIS 3 BS
0.012 (0.502)
FL_DIS 3 BIN%
0.013 (0.837)
FL_DIS 3 CEO_Dul
0.003 (0.305)
FL_DIS 3 INST%
0.059** (2.017)
FL_DIS 3 AUDIT
0.107*** (2.916)
FSize
2.431*** (6.135)
FProf
2.169*** (4.806)
FLiq
0.106 (0.194)
0.649** (2.072)
FLev
FDiv
0.751** (2.249)
FGrth
1.149*** (3.083)
FCapEx
0.138 (0.864)
Intercept
3.149*** (6.853)
Year-FE
Yes
Year FE
Yes
Industry-FE
Yes
Industry FE
Yes
F-test
6.832***
F-test
10.472***
Adjusted R-Squared %
41.504
R-squared
21.706
Tolerance
0.539
Tolerance
0.574
Observation
432
Observation
432
Note(s): *, **, *** means coefficient is significant at 10%, 5% and 1% levels, respectively
Table 7.
Lagged values results
JAAR
the board size of Kuwaiti firms inversely influences the disclosure of future-oriented
information in the annual reports. Thus, policymakers should consider this point and reform
the NCL to reflect suggestions for an optimal level of board size. The results confirm H2 and
reveal that independent board members positively impact future-oriented information.
This supports the view that they reduce information asymmetry and subsequently increase
the levels of disclosure (Goh et al., 2016). However, the results do not find an effect of role
duality of a firm CEO on the disclosure of future-oriented information leading to rejection of
H3. Besides, they do not confirm H4; however, they support the myopic and short-term view of
institutional investors in Kuwait that they induce firm managers to disclose less futureoriented information. The results are in sync with H5 that Kuwaiti firms with larger audit
committees disclose more future-oriented information supporting the idea that audit
committees are essential in alleviating conflicts of interest between shareholders and
managers. Finally, the results partially support H6 and show that future-oriented information
enhances the values of Kuwaiti firms with less institutional ownership and larger audit
committees. The results add to the agency theory whereby corporate managers disclose
relevant voluntarily information which sequentially would be reflected in the enhancement of
firm values.
These findings provide implications for investors and policymakers in Kuwait. First,
policymakers in Kuwait should consider the vital role of CG to improve the transparency of
disclosure as a system to mitigate the agency problem. Hence, Kuwait investors looking for
more transparent firms would likely be inclined to invest in firms with specific CG
mechanisms, including smaller boards, more independent members, fewer institutional
investors and more prominent audit committees. Given the economic growth in Kuwait, firms
should prioritize the quality of their corporate reporting and their governance mechanisms to
fall in line with the authorities’ vision of Kuwait 2035. Second, the results provide a better
understanding of how future-oriented information promotes the value of Kuwaiti firms.
Hence, policymakers may urge managers to provide more future-oriented information to
enhance the value relevance of information available in the annual reports. Subsequently,
through investor decisions, they can improve the market valuations of Kuwaiti firms. Finally,
Kuwaiti investors may appreciate these findings, as they indicate that fewer institutional
investors and larger audit committees strengthen the association between future-oriented
information and firm values. Investors might rely on such mechanisms to shape views about
corporate value. Overall, the research results support the view that future-oriented
information is credible in the Kuwaiti context, though still at low levels.
The study has limitations that may be the trigger for future research. The sample is
limited to firms listed in Boursa Kuwait. Expanding our research design to include other
stock markets in the GCC region can be an area for future research that helps undertake crosscountry analyses for determinants and consequences of future-oriented information.
Furthermore, this study focuses on management decisions to disclose future-oriented
information in the annual reports. Examining other managerial decisions such as the
Research and Development (R&D) spending (Hassanein et al., 2021a, 2022) and other
channels of disseminating information such as social media disclosure (Hassanein et al.,
2021b) provide avenues for future research. Furthermore, investigating whether futureoriented disclosure in the annual report leads to an information overloading issue (e.g. Alm
El-Din et al., 2022) could be an area for future research.
Note
1. Financial firms are all firms belongs to the following sectors: banks, insurance, financial services and
real estate.
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Corresponding author
Ahmed Hassanein can be contacted at: Hassanein.a@gust.edu.kw; Ahmeda1@mans.edu.eg
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