The Impact of ESG Disclosure on Financial Reporting Quality: Evidence from KSA

Abstract

This study investigates the impact of environmental, social, and governance (ESG) disclosures on the quality of financial reporting (FRQ) among nonfinancial firms listed on the Saudi Stock Exchange. Using panel data analysis, the study examines the relationship between ESG disclosures and FRQ across three models, incorporating variables such as Environmental Disclosure, Social Disclosure, Governance Disclosure, firm Size, Industry classification, and the presence of Big Four audit firms. The analysis is based on a sample of 25 nonfinancial firms from various sectors, representing 125 observations spanning the period from 2019 to 2023. The findings reveal significant positive associations between comprehensive ESG disclosures and enhanced FRQ, underscoring the role of transparency and accountability in corporate reporting practices. The results suggest that firms adopting robust ESG reporting frameworks can improve financial transparency and stakeholder trust in Saudi Arabia's business environment.