Financial Reporting Quality and Firm Value: Evidence from Saudi Arabia

Abstract

AbstractResearch Objective Grounded in agency, signaling, and stakeholder theories, this study investigates the impact of perceived financial reporting quality (FRQ) on firm value and investment decision-making within the reforming institutional landscape of Saudi Arabia's capital market under the Vision 2030 initiative. Specifically, it examines whether audit quality and corporate governance (AQCG), IFRS adoption, and narrative/ESG disclosures function as mediating or moderating variables in this relationship.Methodology The study employs a quantitative, cross-sectional survey design utilizing data gathered from 180 financial market professionals (including analysts, auditors, managers, regulators, and academics). Hypotheses were tested using structural equation modeling (SEM) and moderated multiple regression analysis. The measurement model demonstrated robust psychometric properties, featuring strong construct reliability (Cronbach 's alpha = 0.744 - 0.898), convergent validity (AVE > 0.50), and highly satisfactory model fit indices (RMSEA = 0.028; CFI = 0.904).Key Findings The empirical results demonstrate that perceived FRQ has a significant positive effect on firm value and investment decision-making; however, this relationship is fully mediated by AQCG, with no statistically significant direct path observed. Conversely, neither IFRS adoption nor narrative and ESG disclosures act as significant mediators or moderators. This lack of significance is attributed to the voluntary nature of current ESG reporting and uneven IFRS compliance across listed firms. Additionally, AQCG was found to exert a strong, independent direct effect on investment decisions.Contributions & Policy Implications This research contributes to the accounting literature by offering empirical insights from an emerging Gulf Cooperation Council (GCC) market. It demonstrates that internal corporate governance and external audit mechanisms—rather than mere accounting standards compliance—serve as the primary channels through which financial information translates into market value. To strengthen this quality-value transmission mechanism, the study advises regulators to implement mandatory ESG reporting frameworks, auditor rotation mandates, and AI-driven auditing technologies.

Keywords: Perceived Financial Reporting Quality, Firm Value, Corporate Governance, Audit Quality, IFRS Adoption, ESG Reporting, SEM, Saudi Arabia, GCC.

DOI: 10.54941/ahfe1008151