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Role of audit
The role of audit committee committee
attributes in corporate attributes

sustainability reporting
Evidence from banks in the Gulf
Cooperation Council Received 14 June 2018
Revised 12 October 2018
Amina Buallay 13 November 2018
Accepted 19 November 2018
Brunel University London, London, UK and
Ahlia University, Manama, Bahrain, and
Jasim Al-Ajmi
Banking & Finance Department, Ahlia University, Manama, Bahrain

Abstract
Purpose – The purpose of this paper is to analyze the extent to which sustainability reporting by banks in
the Gulf Cooperation Council (GCC) is affected by the attributes of audit committees.
Design/methodology/approach – The research is positivist and quantitative, based on a cross-sectional and
time series analysis of 59 banks from 2013 to 2017. A multivariate model is used to investigate the impact of
selected audit committee attributes ( financial expertise, size, members’ independence and meeting frequency) on
sustainability reporting. The model is built on agency, legitimacy, resources and stakeholders theories.
Findings – In contrast to the hypothesis, the authors report a negative association between financial
expertise and sustainability reporting. Members’ independence and meeting frequency play a positive role in
determining the extent of disclosure. The control variables (bank size, age and auditor type) are positively
associated with corporate sustainability reporting.
Research limitations/implications – The main limitations of this study are related to the chosen
attributes of audit committee and do not consider the board’s attributes. However, the authors believe these
limitations do not affect the findings. Future research that includes more attributes when they became
available will offer more insights into the role of audit committees on sustainability disclosure of financial
institutions. Overcoming these limitations may make the results more generalizable.
Practical implications – The results of this study have important implications for regulators, bank
management, investors and creditors. For regulators, in the countries of the GCC and in countries like them,
the findings reveal the importance of disclosure requirements. The development of disclosure requirements is
likely to improve corporate sustainability reporting and reduce variations in the extent of disclosure among
banks. Banks could use these results to improve their reporting to outsiders. For creditors and investors, the
study improves their awareness of the importance of corporate social responsibility, corporate governance
and environmental information on credit and investment decisions and encourages banks to improve their
disclosures of non-financial information.
Originality/value – This research makes a contribution to the scarce literature on sustainability reporting
by banks, especially in an environment where capital markets lack active institutional investors, where
regulators play the dominant role in determining the extent of disclosure and where banks are the main
source of external finance for the corporate sector.
Keywords Sustainability reporting, GCC countries
Paper type Research paper

1. Introduction
Managers consistently face the decision of how to allocate scarce corporate resources in an
environment placing more and more emphasis on long-term business success (Waddock and
Graves, 1997). Effective implementation of well-developed corporate governance
requirements is a key factor in long-term business success. Poor corporate governance Journal of Applied Accounting
Research
practices are found to be a main contributor to the 1997 Asian financial crisis, © Emerald Publishing Limited
0967-5426
well-publicized US bankruptcies such as Enron and Worldcom and the 2008 financial crisis. DOI 10.1108/JAAR-06-2018-0085
JAAR These corporate failures added momentum to the call for stricter regulations, stronger
corporate governance practices and more transparent disclosure of financial and non-
financial information for stakeholders to have a more effective monitoring control for
corporations, greater management accountability and better valuation of firms. Those
bankruptcies were a catalyst for the spread of regulatory changes in corporate governance
requirements worldwide (Woidtke and Yeh, 2013). Two of the core principles of corporate
governance are the accountability of firms’ actions and conduct to shareholders, and
transparency, in the form of disclosure of financial and non-financial information.
Transparency allows owners to ensure that firms are well managed and to hold both boards
and executives accountable.
Since the introduction of the Global Reporting Intuitive (GRI), sustainability reporting
has become a serious research line focusing on non-financial disclosures. The GRI covers
environmental, social and governance disclosure. Wilburn and Wilburn (2013) stated that
sustainability performance indicators (environmental, social and governance) can help a
firm create sustainability strategies and help stakeholders evaluate a firm’s sustainability
performance (Leung and Gray, 2016; Rao and Tilt, 2016).
The GRI Sustainability Reporting Guidelines defines sustainability reporting as “a
process that assists organizations in setting goals, measuring performance and managing
change towards a sustainable global economy – one that combines long term profitability
with social responsibility and environmental care” (Global Reporting Initiative, 2013, p. 85).
Sustainability reporting communicates a firm’s economic, environmental, social and
governance performance, reflecting positive and negative impacts on the firm’s performance
(Gray et al., 1995; Mistry et al., 2014; Sharma and Kelly, 2014).
As the implementation of sustainability reporting and the adoption of corporate
governance are still in their early stages in Gulf Cooperation Council (GCC) countries and
emerging markets, when compared to developed countries, empirical investigations of the
role of corporate governance in corporate social responsibility (CSR) is scant. Therefore, this
study provides the earliest empirical research that discusses the relationship between AC
attributes and sustainability reporting of GCC banks. Specifically, this study investigates
the capability of AC attributes to better support the disclosure of sustainability information.
Simpson and Kohers (2002) believed a single industry that has a set of unique
characteristics offers additional insights and also mitigate some of the measurement
problems. In terms of industrial sectors, the banking and finance industries had the highest
proportion of CSR disclosing companies (Tsang, 1998; Zeghal and Ahmed, 1990). The
selection of banks is motivated by the significant role they play in the GCC economies as the
main source of funding to corporations because of the lack of a developed secondary market
of debt and the dearth of research in the area of the impact of corporate governance on
disclosure of CSR ( Jizi et al., 2014). GCC markets are considered to be unique because their
capital markets lack active institutional investors and where regulators play the dominant
role in determining the extent of disclosure.
Sustainability disclosures are assumed to be significant for all stakeholders; hence,
factors affecting the sustainability information disclosure need to be highlighted. This study
contributes to the literature in a number of way. First, from an academic perspective, it
sheds light on the rare prior studies that show the effect of AC attributes on sustainability
disclosure considering samples from emerging economy (such as gulf countries). Second,
from a practical perspective, this study provides insights into the relationship between AC
attributes and the disclosure of sustainability, which organization may use to re-arrange the
roles within them, reassign internal priorities, and to escalate their position in their
environment. Third, from an economy level, our findings should be of interest to regulators
and policymakers in emerging markets who have already adopted governance and
considered sustainability reporting in their respective contexts.
 The study is divided into the following sections. Section 1 is the introduction. Section 2 Role of audit
presents the theoretical framework and hypotheses development. Section 3 presents the committee
design and research methodology and the sample description. Section 4 presents the attributes
empirical analysis results. Section 5 presents the study’s conclusion, recommendations and
the scope for further research.

2. Theoretical framework and hypothesis development

2.1 Theoretical framework
Employees, customers, suppliers, creditors, decision makers, regulators and various
stakeholders keep the track of different economic, environmental, social and governance
disclosure to determine firms’ long-term sustainability (e.g. Laplume et al., 2008). A
significant channel through which firms try to meet these demands is sustainability
reporting. By reporting on sustainability, firms aim to increase transparency, enhance value,
reputation, and legitimacy, attain competitiveness and motivate staff (Herzig et al., 2006).
A key distinguishing characteristic of sustainability reporting is that the stakeholders of
these disclosures are not strictly limited to a firm’s investor base, as is the case with
financial reporting. In fact, by disclosing a sustainability report, firms endeavor to inform
their stakeholders about a range of environmental, social and governance objectives, actions
and performance.
Sustainability advocates believe that promoting sustainable reporting will benefit both
firms and stakeholders. Considering the needs and interests of firms and stakeholders for
business sustainability, this study is mainly based on two theories – legitimacy and
stakeholder theories. In a widely cited article, Gray et al. (1995) argued that these theories
could serve as background for disclosures of CSR and, hence, environmental, social and
governance (ESG) disclosure. Legitimacy theory asserts that the disclosure of information in
annual reports and by other means to legitimize firms’ decisions and practices has a positive
impact on meeting community concerns and, hence, improves a firm’s legitimacy. Castelo
Branco and Lima Rodrigues (2006) in their study suggested that legitimacy theory provides
an explanation of social responsibility disclosure by banks. On the other hand, stakeholders’
theory suggests that organizations disclose voluntary information to meet stakeholders’
demands for more information. Financial institutions in GCC contribution to gross domestic
product (GDP) come second after the oil sector, except in Bahrain in which the sector is the
largest in its GDP and banks are the largest listed firms in the local stock exchanges. As a
result, listed firms attract the interest of society and their stakeholders are wider than other
sectors of these economies. Hence, they are subject to tremendous pressure to gain social
acceptance and adhere to the social contract with the society, as predicted by legitimacy
theory, and also to meet their stakeholders’ expectations. Gray et al. (1995) debated that
there is an interaction between legitimacy and stakeholder theories. Both theories expect,
from different angles, that the more information companies disclose should have positive
impact on companies’ performance. More disclosure lead to a reduction of the magnitude of
the information-asymmetry problem (Clarkson et al., 2008), improvement in the effectiveness
of scrutiny from financial institutions and other suppliers of funds (Leftwich et al., 1981) and
a decrease of company’s cost of capital ( Jensen and Meckling, 1976).
Over the last few decades, alongside the academic debates on the role of sustainability
reporting, many companies have started voluntarily increasing their efforts to provide
information on ESG (environmental, social and corporate governance) with the aim of
legitimizing their existence and enhancing their reputations (Fatemi et al., 2018). According
to KPMG (2011), in 1996 only 300 companies worldwide issued reports about CSR; by
September 2018, more than 7,000 companies had ESG data that can be obtained from
Bloomberg platform. Therefore, this study considers a combination of both legitimacy and
stakeholder theories in order to analyze the relationship between ESG and performance.
JAAR 2.2 Audit committee
Corporate governance has generated many changes in the business environment and, in
particular, the accounting and auditing professions. In the past few years, there has been
greater interest and focus upon the role of audit committees as they act as tools within
corporate governance. One of the most important pillars of a good corporate governance
framework are audit committees, which are expected to improve board oversight, enrich the
quality of financial reporting, reduce information asymmetry problems, enhance auditors’
performance, independence and objectivity, enhance the risk-management function, and
improve financial decision making; these were manifested during financial crisis (Alderman
et al., 2011). Understating the focal role of AC in governing financial institutions, all GCC’s
central banks require each bank to form board audit committees comprising of at least three
non-executive members and at least one member with an accounting and financial
background. For example, The Saudi Monterey Agency (SAMA) requires banks to follow
strict requirements to ensure members’ independence, expertise and knowledge that allow
them to be effective members. It requires members and family members of the first degree to
not have business dealings with the bank of more than $79,575 and have non-business
relation with any board member or senior management professional (Saudi Monetary
Agency, 2014).
In recent years, the interest in the role of audit committees expanded in terms of their role
in preparing financial statements. Martinez and Fuentes (2007) found that an audit
committee is more dynamic in reviewing financial statements and decreasing differences
between managers and external auditors. This lessens the likelihood of a company having
qualified opinions from an external auditor resulting from accounting errors and non-
commitment to accounting standards.
Audit committees play a crucial role in the practices of corporate governance. Audit
committees monitor the internal control system through associations with internal auditors,
as external reporting and compliance is completed by external auditors. Amongst all
aspects of relationships between internal auditors, external auditors and the board of
directors, audit committees have a crucial role to play (Saibaba and Ansari, 2011).
The role of ACs in the quality of financial reporting and of voluntarily disclosure has
been widely investigated (Samaha et al., 2015). This is because ACs are pivotal in supporting
boards of directors in providing accurate, relevant, timely and sufficient information to
allow users of financial reporting to evaluate management and make informed decisions
(Allegrini and Greco, 2013). An effective audit committee contributes to the improvement of
disclosure quality and reported earnings (Vafeas, 2005). An effective AC also improves the
level and quality of voluntary disclosure (Karamanou and Vafeas, 2005). Past literature on
ACs has stated that the effectiveness of an AC depends on its attributes (Akhtaruddin and
Haron, 2010; Dhaliwal et al., 2010; Li et al., 2012). Therefore, a reliable mixture of experience,
expertise and capabilities are crucial in supporting an AC’s ability to efficiently carry out its
responsibilities (Madi et al., 2014). However, empirical evidence on the role of ACs in
voluntary disclosure is mixed. Al-Shammari and Al-Sultan (2010), among others, reported a
positive impact of ACs on voluntary disclosure. However, Allegrini and Greco’s (2013)
results do not support this positive association. Hence, ACs effective role depends on their
attributes that is the subject of the study.

2.3 Hypotheses development

2.3.1 Audit committee financial expertise. Agency theory postulates that members with
financial expertise improve an AC’s ability to evaluate auditors’ judgments and can be
instrumental in developing a more rigors internal control system and risk-management
framework (Sultana et al., 2015) and can be more effective in questioning financial reporting
(Badolato et al., 2014). A lack of such expertise in ACs will make the committee rely on
external auditors’ judgments. The effectiveness of an AC is enhanced by the financial Role of audit
expertise of committee members; this is a key characteristic that ensures effective operation committee
(Baxter and Cotter, 2009). Lisic et al. (2011) suggested that when there is a financial expert attributes
on the AC, it does not necessarily mean that there is more effective monitoring. Rather,
monitoring effectiveness of AC financial expertise depends on the authority of top
management. Financial expertise does, however, allow AC members to categorize and
debate questions that challenge managers and external auditors to a bigger scope of
financial reporting quality (Bédard and Gendron, 2010). In response, this will improve the
clearness and reliability of corporate reporting and, therefore, lessen issues that are related
to the flow of information. A study conducted by Kent et al. (2010) found a positive relation
between an AC’s financial expertise and the quality of financial reporting. Baxter and Cotter
(2009) stated that the level, activities and responsibilities of an AC are crucial in terms of
improving the reliability in enhancing earnings quality. Prior empirical studies indicate a
positive relationship with disclosures (e.g. Mangena and Pike, 2005; Mangena and
Tauringana, 2007). However, Li et al. (2012) reported a significant negative association
between members’ financial expertise and intellectual disclosure. Therefore, the first
hypothesis is constructed as follows:
H1. Ceteris paribus, AC members’ financial expertise positively affect the level of ESG
disclosure of GCC-listed banks.
2.3.2 Audit committee size. Corporate governance codes of many stock exchanges require
firms to have an AC of no less than three members. This is because size is viewed as an
indicator of monitoring quality (Hoitash et al., 2009). According to resources dependency
theories, as size increases, more diverse experiences are brought to the meetings, which
increases AC effectiveness and places the committee in a better position to discover and
resolve potential problems in the financial reporting process (Bédard et al., 2004; Sultana
et al., 2015). In contrast, it has been argued that the larger the size of the committee may lead
to the loss of process and responsibility diffusion (Karamanou and Vafeas, 2005) and the
emergence of free riders (Karamanou and Vafeas, 2005; Klein, 2002). These results lend
further support to the prediction of the agency theory, which assumes that humans act in
their self-interest; hence, a larger committee size may lead to less coherence between
members and hinder the AC’s ability to achieve its goals. Empirical studies on the impact of
AC size on financial reporting are inconclusive (Hoitash et al., 2009). Barako et al. (2006)
reported a positive impact of AC size on the level of disclosure of CSR, Li et al. (2012) found a
positive impact of size on the disclosure of intellectual capital and Persons (2009) found
evidence that numerous directors on ACs tend to improve the level of voluntary disclosures.
Some studies such as Bédard et al. (2004) failed to find a significant relationship between AC
size and voluntary disclosure in interim reports. In their previous work, Allegrini and Greco
(2013) stated that the resource dependency theory argues that a large AC is more eager to
dedicate resources and authority to effectively carry out responsibilities. The more directors
there are on an AC, the more diversity, expertise and capabilities are there that would
guarantee operative monitoring (Bédard and Gendron, 2010). Therefore, a large number of
AC members are more likely to aid a committee to expose and solve issues and dilemmas in
corporate reporting processes (Li et al., 2012). This means that size is an integral factor for
an AC to oversee corporate disclosure practices (Persons, 2009).
Persons found evidence that numerous directors on ACs tend to improve the level of
voluntary disclosures. Therefore, the second hypothesis constructed as a non-directional is
as follows:
H2. Ceteris paribus, there is an association between AC size and the level of ESG
disclosure of GCC-listed banks.
JAAR 2.3.3 Independent directors. The role of independent directors in achieving boards’ goals
gained more momentum after the failure of big firms in the USA in the early 2000s. This is
manifested in corporate governance codes worldwide. One of the most important goals for
the presence of those directors is the protection of shareholders’ interests (Fama and Jensen,
1983). Baxter and Cotter (2009) stated that an AC’s independence is a key characteristic that
influences a committee’s competence and effectiveness in the process of managing financial
statements. Also, an AC’s independence is greatly related to the measurement of earnings
quality. An independent AC is expected to play a crucial role in financial reporting, auditing
and corporate governance; independent directors place an effort on enhancing the processes
conducted by board members and even bring in specialists to make use of their expertise
and knowledge, to provide continuity, and to assist in recognizing alliances and
acquisitions. These directors help sustain a morally ethical climate within the organization
(Frankel et al., 2011). Neifar and Jarboui (2018) reported a positive significant association
between independence and the level of risk disclosure of Islamic banks. Others repot
negative relationship (Lopes and Rodrigues, 2007; Al-Maghzom et al., 2016). Therefore, the
third hypothesis is constructed as follows:
H3. Ceteris paribus, AC board independence positively affect the level of ESG disclosure
of GCC-listed banks.

2.3.4 Audit committee meetings. To monitor corporate reporting and other responsibilities
effectively, ACs should devote the needed time to frequent meetings (Karamanou and Vafeas,
2005). Adequate meeting time is needed for members of ACs to ensure the quality of corporate
reporting and other major issues such as internal control in large and complex organizations
(Agrawal and Chadha, 2005). FRC (2016) emphasized the importance of time allocated by the
members and the chairperson of the ACs to perform their responsibilities. Hence, more
frequent meetings will make it possible for them to discharge their duties. In these meetings,
committee members will discuss, among other things, the audit reports, the contents of
financial reports, and internal control system, i.e., including internal financial controls
becomes more effective. Hence, AC meetings are viewed as an important mechanism to
influence the features of the reports and their timeliness and to ensure report integrity
(Stewart and Munro, 2007). Furthermore, DeZoort et al. (2002) postulated that the frequency of
meetings is seen as a measure of an AC’s due diligence. This is because the frequency of
meetings is considered as a core element in the reliability and efficiency of a company’s
activities and processes, although few studies have acknowledged the connection between a
company’s performance and the number of meetings (Ioana, 2014). Accordingly, meetings’
frequency is considered as an important characteristic of ACs. Board members that regularly
meet are more likely to accomplish their work and responsibilities attentively and
successfully. More efficient boards would directly and indirectly improve the oversight of
financial reporting through their choices of external auditors and the AC (Yatim et al., 2006).
ACs’ effectiveness is found to have a significant influence on the level of disclosure (Samaha
et al., 2015). Research also shows that diligent ACs will reduce the chance of fraud and
minimize the use of discretionary accruals to manage earnings reporting, and they are highly
likely to deal effectively with the weaknesses of internal control (Krishnan and Visvanathan,
2007). Raghunandan and Rama (2007) and Sharma et al. (2009) found that the frequency of AC
meetings is positively associated with growth and profitability. Also, Abbott et al. (2000) and
Beasley et al. (2000) found that the increasing frequency of meetings is related to a better
quality of financial statements and positively related to voluntarily disclosure (Li et al., 2012).
However, Sultana et al. (2015) investigated the impact of ACs’ attributes, including meeting
frequency, on the timeliness of financial reports of Australian firms. Their results offer little
support to the negative impact of meeting frequency on the reporting lag. For performing their
responsibilities in a better way, banks regulators require ACs to meet at least four times year Role of audit
to review the seasonal and annual reports before they are reviewed by the boards and made committee
public. Therefore, the fourth hypothesis is constructed as follows: attributes
H4. Ceteris paribus, AC frequency of meetings positively affect the level of ESG
disclosure of GCC-listed banks.

3. Research methodology and the sample

3.1 Study population, sample and resources of data
The study depends on the selected sample, which is 295 observations for 59 banks listed on
the GCC stock exchange (Saudi, Bahrain, Kuwait, UAE, Qatar and Oman) for five years,
from 2013 to 2017 (see Table I for the breakdown of the sample).

3.2 The study variables

Research on ACs’ attributes use several variables, including accounting and financial
knowledge, committee size, meeting frequency, members’ independency, percentage of
independent directors, working experience in seniority positions or board membership and
expertise of the chair (Sharma et al., 2009; Alderman et al., 2011, among others).
The dependent variable (ESG score) is measured using a composite index of three
disclosure indicators (environmental disclosure, corporate social disclosure and corporate
governance disclosure). We use Bloomberg’s ESG disclosure score as an indicator of the
extent to which companies disclose information about ESG.
To complete the adopted model, we include three control variables that are found in the
literature to influence disclosure, in general, and ESG, in particular. These variables are firm
size (measured by the natural logarithm of total assets), firm age and audit firm, measured
by a dotcom variable (1 for big 4 and 0 otherwise).

3.3 Study model

In order to measure the relationship between AC attributes and sustainability disclosure, we
estimate the linear regression model as follows:
ESGit ¼ b0 þb1 ACFEitg þb2 ACSZitg þ b3 ACINDitg þb4 ACMitg
þb5 SZitg þ b6 AGitg þb7 AQitg þeitg ;
where ESG is the continuous variable; the dependent variable is the ESG score. β0 the
constant and β1–7 the coefficients of the controls and independent variables.
The independent variables are audit committee attributes:
• ACFE: audit committee financial expertise represented by the number of members
with financial expertise. It is assumed that a member with five years of service in the
audit committee possess financial expertise.

Country No. of banks No. of observations

Bahrain 7 35
Kuwait 9 45
Oman 8 40
Qatar 9 45
Saudi 12 60
UAE 14 70 Table I.
GCC 59 295 Sample Selection
JAAR • ACSZ: audit committee size measured by the number of members serving in
the committee.
• ACIND: audit committee independent members represented by the number of
independent members in the committee.
• ACM: audit committee meeting frequency measured the number of meetings during
the year.
The control variables are as follows:
• SZ: bank size measured as the natural logarithm of the bank’s total assets.
• AG: bank age (AG): the difference between the financial year and the year of
establishment.
• AQ: audit quality is a dichotomous variable (1 is assigned for the bank if it is audited
by one of the big 4 and 0 otherwise).
While i stands for the banks, t stands for the period, g represents the country and ε is a
random error.
Table II shows the variables, their measurements and the expected association of the
regressors and the dependent variable.

3.4 Descriptive analysis

In this section, we used the descriptive statistics to describe the study variables. As shown
in Table III, the mean of AC size is almost 3, ranging from two to eight. According to the
Code of Corporate Governance in gulf countries, at least three members must be assigned to
an AC, this means that the majority are following this rule. As for the frequency of meetings,
there should be at least four meeting per year; the number of meetings range between two to
ten meetings and the mean is 4.38. This indicates that the majority are clearly following the
code. Moving to members’ independence, the majority of the members of the committee,
including the chairman, must be independent directors according to the corporate
governance code. The mean is 0.557, which indicates that the board is increasing the
independence of members to attract more investors and avoid conflicts of interest among

Expected
Variables Labels Sign Measurements

Dependent variables:
ESG disclosure
Independent variables
Audit Committee members’
financial expertise
Audit Committee size
Audit Committee independence
Audit Committee meetings
Control variables
Bank size
Table II. Bank age
Variables Audit quality
measurement
ESG Bloomberg index which combines the Environmental
disclosure, corporate governance disclosure and
corporate social responsibility disclosure
ACFE + No. of members has experience with longer than 5 years
as audit committee member
ACSZ ± No. of audit committee members
ACIND + No. of independent audit committee members
ACM + No. of audit committee meetings per year
SZ + Natural logarithm of the total assets
AG + The number of years since the Bank was established
AQ + Dummy variable; 1 if the bank’s external auditor one of
the big 4 audit firms and 0 otherwise
 Descriptive
Role of audit
Variables Label Mean Max. Min. SD committee
attributes
Dependent variables
Sustainability disclosure ESG 34.01 61.212 2.489 4.459
Independent variables
Audit Committee members’ financial expertise ACFE 4.2 8 8 0.471
Audit Committee size ACSZ 3.8 7 2 1.251
Audit Committee independence ACIND 5.77 3 0 0.084
Audit Committee meetings ACM 4.38 10 1 2.68
Control variables
Bank size (LN) SZ 24.001 56.331 4.665 2.551 Table III.
Bank age AG 20.738 54 4 1.004 Descriptive analysis

the board. As for the financial expertise, it appears that all members in the GCC-listed banks
have the right experience to acquire these positions.
The ESG score mean is 34.01 percent, which is between 61.212 and 2.489 percent. This
index is extracted from the Bloomberg database, whereas the independent variables are
handpicked from the annual reports of the banks. The mean level of the ESG specifies that
the majority of the banks are using a reasonable amount of sustainability reporting. The
large deviation between the levels of disclosure between banks is not surprising given the
fact that these disclosures are largely voluntary and insignificant of institutional ownership.
However, as economic market reforms continue in their aim to attract international
investors, such disclosure is likely to increase in the future.

3.5 Model validity

To check the validity of the study model and data, several tests were performed, such as
normal distribution test, time series stationarity test, autocorrelation and multicollinearity,
and models were checked for not having homoscedasticity. Errors were corrected and
results are believed to be accurate.
As presented in Table IV, to secure approximation of data to normal distribution, the
Shapiro–Wilk parametric and Kolmogorov–Smirnov non-parametric tests were used. The
null-hypothesis of these tests is that the population is normally distributed. Thus, if the
p-value is less than the chosen 0.05, then the null hypothesis is rejected and there is evidence
that the data are not normal. As is shown Table IV, we noticed that the value for all
variables is more than 0.05. This ascertains that the study data are normally distributed.
However, empirical research that uses time series, like the case of this study, presupposes
that stability of these series. Autocorrelation might occur in the model because time series
on which this study is based is non-stationary (Gujarati, 2003). To check the stationarity of
the time series, the Unit Root test, which includes the parametric Augmented Dicky–Fuller
test (ADF), and the non-parametric Phillips–Perron test were used. As is presented in
Table IV, we can notice that the (ADF) test and (PP) test are statistically significant at the
level of 1 percent, which means that the data of time series (2013–2017) were stationary.
The quality of the linear model depends on several important assumptions, one of which
is that every independent variable is independent of all other regressors. If this condition is
not realized, the linear model will be inapplicable. It can never be considered useful in
evaluating the parameters. To actualize this, Collinearity Diagnostics Standard used a
separate tolerance quotient for every independent variable. Variance Inflation Factor (VIF)
has to be found afterwards. This test is the standard that measures the effect of independent
variables. Gujarati (2003) stated that getting a VIF higher than 10 indicates that there is a
JAAR Normality Stationarity Collinearity Autocorrelation Heteroscedasticity
Shapiro– Durbin– Breusch– koenker
Variables Labels Wilk ADF VIF test Watson test Pagan test test

Dependent variables
ESG disclosure ESG 0.000 −18.147*** 2.013 0.000 0.000
Independent variable
Audit Committee ACFE 0.000 −6.557*** 2.273 0.000 0.001
members’ financial
expertise
Audit Committee size ACSZ 0.000 −2.569*** 1.245 0.000 0.000
Audit Committee ACIND 0.000 5.030 0.000 0.000
independence
Audit Committee ACM 0.000 −4.885*** 2.129 0.000 0.000
meetings
Control variables
Bank specific
Bank size SZ 0.000 −1.848*** 4.188 0.000 0.000
Table IV. Bank age AG 0.000 −4.224*** 2.212 0.000 0.000
Model validity Note: Significant at: ***1 percent level

serious multicollinearity problem for the independent variable of concern. As presented in

Table IV, it can be noticed that the VIF values for all independent variables are less than 10,
which means that we do not have any collinearity problems in the study models.
To test the autocorrelation problem in the study models, we used the Durbin–Watson
(D–W) test. Table IV shows that the D–W values of the models are within the 1.5–2.5 range.
This indicates there is no autocorrelation in this model.
Finally, one of the significant assumptions of the regression models is the presence of
homoskedasticity. Its mean should be equal to 0. If the heteroskedasticity is present in the
model, then some statistical methods will be used to overcome this problem, such as
Breusch–Pagan test. As is shown in Table IV, we find that p-value of the three models are
more than 0.05, which indicates admitting the null hypothesis; these models do not suffer
from actual heteroskedasticity.

4. Results and analysis

We developed the linear model in order to answer the question: Is there an effect of audit
committee attributes on the level of sustainability disclosure?
The results of the multivariate regressions are shown in Table V. The results reveal that
the ESG multiple regression model has a high statistical significance and high explanatory
power, as the p-value of F-test is less than 5 percent.
For the AC members’ financial expertise, we found that sustainability disclosure has a
negative significant relationship with AC members’ financial expertise. This is contrary to
the prior expectations that financial expertise would have a positive significant impact on
ESG disclosure by GCC banks. These surprising results are in contrast to those reported by
many studies, such as Mangena and Pike (2005) and Mangena and Tauringana (2007).
However, they are similar to those of Li et al. (2012), who found a negative relationship
between financial expertise and the disclosure of voluntary information by British
companies. And they may contradict the proposition that corporate governance codes, not
only in GCCs, but worldwide, that having AC members with financial expertise is a
necessary prerequisite for effectiveness. To clarify the results, when there is a financial
expert on the AC, it does not mean that there is more effective sustainability disclosure.
 ESG model
Role of audit
Variables Label β t-statistic committee
attributes
Independent variable
Audit Committee members’ financial expertise ACFE −0.347 −3.036***
0.000
Audit Committee size ACSZ 0.446 2.370***
0.001
Audit Committee independence ACIND 0.599 6.483**
0.000
Audit Committee meetings ACM 0.109 1.719**
0.040
Control variables
Bank size SZ 0.175 1.602**
0.049
Bank age AG 0.388 3.448***
0.000
Audit quality ADT 0.835 8.011***
0.000
2
R 0.425
Adj. R2 0.317 Table V.
F-statistic 22.668 Results of the
p-value 0.000 multivariate
Notes: **,***Significance at 5 and 1 percent levels, respectively regression

Rather, the monitoring effectiveness of ACs requires financial expertise that allows
members to contribute in developing effective internal control and risk management process
(Li et al., 2012). The lack of such expertise is likely to lead ACs to be more reliant on the
opinion of external auditors (Sultana and Mitchell Van der Zahn, 2015). Furthermore, the
decision as to how much banks should disclose voluntarily is taken by the board rather than
ACs because board committees in the GCC report to the board, which has the final
decision-making authority.
Additionally, we found that the committee size has a positive relationship with
sustainability disclosure. Therefore, we accept the null hypothesis (H2); AC size affects the
level of ESG disclosure of GCC-listed banks. The findings are consistent with a large number
of studies that reported a positive association between ACs and voluntarily disclosure (e.g. Li
et al., 2012). These results lend further support to the argument of resource dependency theory
that argues that a larger size allows ACs to draw from different experiences that members
bring to the boardroom (DeZoort et al., 2002). The larger size increases the presence of the
committees in the boards, which may lead boards to accept ACs’ recommendations as to how
much banks should disclose voluntarily. They also lend further support to regulators’
encouragement to set a minimum size for ACs. Based on this result, it is believed that a smaller
board is able to disclose sustainability information and make better decisions and that a larger
committee size may lead to the disclosure of more information.
Furthermore, the results reveal that AC members’ independency influenced positively ESG
disclosure, which is significant at 1 percent. This indicates that AC independency for GCC-
listed banks have the power to realize the full potential of the governance, CSR and
environmental information. This means that independent AC members have influence over
sustainability disclosures. Therefore, we accept the null hypothesis (H3); AC independency
affects the level of ESG disclosure of GCC-listed banks. These results are consistent with those
of Mangena and Tauringana (2007); however, they contradict those of Li et al. (2012) who fail
to find significant relation between members’ independence and intellectual disclosure.
JAAR Last but not least, there is a significant positive relationship between the frequency of AC
meetings and ESG at the 5 percent significant level or better. Therefore, we accept the null
hypothesis (H4); AC frequency of meetings affects the level of ESG disclosure of GCC-listed
banks. This is due to the fact that as these meetings increase, awareness and experience
increase among members, and there will be more encouragement of non-financial
information disclosure in sustainability reports. Our results are consistent with those of
Allegrini and Greco (2013) and Li et al. (2012).
For the control variables, the bank size is found to be significantly positive associated
with ESG. This is evidence that banks with large total assets are more likely to voluntarily
disclose information. These results are consistent with a large number of studies, including
Li et al. (2012), who reported a positive association between firm size and disclosure of
intellectual capital, and Neifar and Jarboui (2018) who reported a positive significant impact
of firm size and risk management. Moreover, bank age positively affects ESG disclosure, as
older banks disclose more sustainable information. These results are inconsistent with those
of Haniffa and Cooke (2002) who failed to find significant association between the listing age
and level of voluntarily disclosure. However, they are in line with the expectation of both
legitimacy and stakeholders because the longer a bank is in existence, it may increase the
visibility and widen its stakeholders, which may motivate banks to be more transparent to
gain more legitimacy and meet stakeholders’ expectations. The difference in our results and
those of Haniffa and Cooke (2002) may be due to differences in the samples, as our samples
include only banks, whereas their samples include no financial institutions and use listing
age as a proxy for the firm size. Finally, audit quality positively affects ESG disclosure; the
real reason why these banks acquire or hire these name brand auditors is to avoid conflicts
of interest in their structured ownership. Furthermore, the results show that auditors play a
significant role in determining the level of disclosure of the ESG. This is likely because the
expertise and experience possessed by big 4 firms influence the level of disclosure (Haniffa
and Cooke, 2002), whereas Lopes and Rodrigues (2007), Oliveira et al. (2011) and Neifar and
Jarboui (2018) reported positive impacts of the type of auditors on the risk disclosure.

5. Conclusion, recommendations and future research

The paper reports the results of an empirical investigation on the role of attributes of audit
committees ( financial expertise, AC size, independency of AC members and AC meetings
AC size, independency of AC members and AC meetings frequency) on the level of
disclosure of ESG by banks listed on the stock exchanges of GCC during 2013 through 2017.
As expected, a large variation exists between bank’s levels of disclosure.
The results showed that AC size, independency of AC members and AC meetings have
significant positive impacts on sustainability disclosure. However, AC member’s financial
expertise has a negative and significant impact on sustainability disclosure.
Considering the results of some studies that show positive associations between
sustainability reporting and a company’s value, we recommend that banks focus more on
the AC’s attributes to assure more sustainable transparency to their stakeholders.
Furthermore, banks and regulators in GCC countries are recommended to start exploring
the reasons for the negative relationship between AC member’s financial expertise and
sustainability disclosures.
Despite the increase in the number of published studies on sustainability reporting,
banks are largely ignored, especially in GCC countries. This is partially related to the
unavailability of data for an acceptable range, and limited interest by banks, regulators and
other users. This paper, as it is the first as per our knowledge, aims at motivating more
research in the area, especially when all governments in GCC countries are actively engaged
in reforming their economies and markets with the aims of increasing the role of the private
sector in their economies and attracting foreign investment.
 Several more opportunities exist for future research. First, increasing the number of Role of audit
countries may explore the extent to which our results generalize to these different and committee
diverse countries. The diversity may take into consideration countries at different stages of attributes
market development and features of governance. Second, sectors other than banks are
recommended to be examined. Third, a fruitful avenue for future research is to investigate
the effect of board attributes on sustainability reporting over time. Finally, another avenue
for research is how AC attributes affect other forms of reporting, such as integrated
reporting and intellectual capital reporting.

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Corresponding author
Amina Buallay can be contacted at: ameena.buallay.87@gmail.com

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