Corporate governance, IFRS 7 compliance and the cost of equity capital in GCC banks

  • Amal Yamani

Student thesis: Doctoral Thesis

Abstract

The purpose of this thesis is to address different aspects related to compliance with IFRS 7 and the relevant determinants and economic consequences. The thesis includes four chapters, each providing a contribution to the knowledge and literature. First, it addresses the essential steps for constructing a compliance index, answering the research question: what are the guidelines for constructing an index for compliance with IFRS 7? Second, it measures the level of compliance with the disclosure requirements related to IFRS 7 in GCC listed banks from 2011 to 2017. Third, it identifies the effects of corporate governance (CG) determinants on the degree of compliance. Fourth, it examines the impact of compliance on the cost of equity capital. A self-constructed index was employed to measure the compliance level. In addition, content analysis and panel data regression were utilised within this study to obtain the desired results. The findings of the thesis reveal gaps in prior research and provide opportunities for future studies. The results show that the compliance trend remained stable over the seven years with an average of 78%, and the differences between the member countries were very few. Moreover, the results highlight the significant role that CG, in particular, plays in the GCC environment. It shows that board size, board independence, board meeting frequency, and institutional ownership negatively affect the compliance level significantly. In contrast, other factors (AC size, AC independence, AC meetings, blockholder ownership, and governmental ownership) affect the compliance degree positively. However, the firm characteristics which are considered as control variables do not show any significant impact, except profitability which has a positive influence at a significance level of 90%. In terms of the consequences of compliance, the results show that the compliance level reduces the cost of equity capital. The association is affected by some control variables, such as market development, inflation rate, M2B value, and bank size.
This thesis introduces a number of contributions, the first of which is the diversity of the content with which it deals with research issues. This includes the diversity of theories that explain the relationships between study variables, as well as the analytical methods used to conduct the research. In addition, it presents illustrative steps to establish an index under the basic requirements in a descriptive study, building a new index to measure cross-country compliance with IFRS 7. It also adds to the literature new evidence, from a group of developing countries, about the role of CG determinants in enhancing compliance, and from another perspective, the impact of such compliance on COEC.
This research supports the efforts by the International Accounting Standards Board (IASB) to improve the quality of disclosure in particular, and the convergence of accounting practices between countries in general, by enhancing compliance with the standards. It, therefore, reflects a real image of the extent to which institutions comply with these standards in the Gulf region. Moreover, the research provides support for the initiatives and efforts of policymakers and organisations responsible for monitoring and enforcement of the standards, such as governmental institutions and accounting associations.
Date of AwardMar 2020
Original languageEnglish
SupervisorKhaled Hussainey (Supervisor)

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