Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.4, No.4, 2013 25 Corporate Governance Mechanisms and Voluntary Disclosure in Saudi Arabia Yaseen Al-Janadi 1 * Rashidah Abdul Rahman 2 Normah Haj Omar 2 1*. Assistant Professor of Accounting, Department of Accounting, Qassim University, Saudi Arabia, Email: y.aljanadi@qu.edu.sa or yaseenjanadi@gmail.com . Ph:+966-582866650. 2. Professor of Accounting, Faculty of Accountancy, UiTM, Malaysia. Abstract The main objective of this study is to examine the impact of internal and external corporate governance mechanisms on voluntary disclosure in Saudi Arabia. The sample consists of 87 companies from the Saudi Stock Market. The data are collected from the annual reports for the available financial years 2006 and 2007. It is found that corporate governance mechanisms play a vital role in providing quality reporting. Most corporate governance mechanisms, especially non-executive directors, board size, CEO duality, audit quality, and government ownership, have a significant contribution in providing quality voluntary disclosure. The findings of this study provide evidence on the effectiveness of corporate governance as a mechanism of monitoring power to provide users with adequate and sufficient information. The findings of this study have important implications for authority regulators, policy makers, shareholders and other users of reports who have an interest in best practices of corporate governance. Keywords: Corporate Governance, Voluntary Disclosure, Saudi Arabia 1. Introduction The numerous bankruptcies and business failures that have happened in gigantic companies around the world such as Enron, World com and Paramalat in 2002 have pressed several corporate governance committees and organizations around the world to produce a number of reports and establish rules that can help in monitoring and controlling management systems. These reports include the Cadbury Report (1992) and Greenbury Report (1995) in the UK, the Business Roundtable (1997) and Sarbanes Oxley Act (2002) in the US, the King Committee Report (1994) in South Africa and the Organization for Economic Cooperation and Development (OECD) Principles (1999, 2004). It is believed that in order for companies to become internationally competitive and be able to attract foreign capital, they need to adopt commonly accepted standards of corporate governance (Solomon, Lin, Norton and Solomon, 2003). The corporate governance system has started to establish strong roots in the Middle East markets, especially from the beginning of this century. Additionally, it is also supported by several international organizations that are interested in corporate governance. Miteva (2005) stated that the OECD had embarked on improving the corporate governance initiative in the Middle East and North Africa (MENA). The OECD – MENA initiative is aimed at modernizing the government structures and proceeding with corporate governance practices in MENA countries. Additionally, it is aimed at improving the policies and environment for investment in the region. As a result, the code of corporate governance was established in Saudi Arabia in 2006. Adequate disclosure of information is essential because without such information, it is not possible to properly judge the opportunities and risks of investment. According to Meek, Roberts, and Gray (1995), there is uncertainty about the quality of firms (e.g. in terms of the nature of their assets and riskiness of cash flows) and their securities. Thus, investors demand information to assess the timing and uncertainty of current and future cash flows so that they may value firms and make other investment decisions. Additional disclosure will help investors to reduce the likelihood of making the wrong investment decisions. Furthermore, the change in the environment and the increase in business complexity are giving rise to additional demands for information (FASB, 2001). Companies satisfy this demand by voluntarily supplying additional information in their annual reports. The issues of disclosure and corporate governance have dominated the headlines of the world’s business press in recent years. Various studies have been published in several countries such as the US, the UK, Continental European Countries and West Asian Countries (e.g. Arcay & Vazquez, 2005; Chen & Jaggi, 2000; Donnelly & Mulcahy, 2008; Forker, 1992; Haniffa & Cooke, 2002; Ho & Wong, 2001; Lakhal, 2005). Most of the empirical studies in different countries around the world that examined the association between corporate governance mechanisms (e.g. board structure) and voluntary disclosure provide mixed results ( e.g. Arcay & Vazquez, 2005;