An-Najah National University 

Faculty of Graduate Studies 
 
 

 
 

 

 

THE EFFECT OF THE AUDIT COMMITTEE 
CHARACTERISTICS ON THE EXTENT OF 

VOLUNTARY DISCLOSURE IN PALESTINE: 
ASSESSING THE MODERATING EFFECT OF 

CORPORATE GOVERNANCE 

 
 

 

 
By 

Farah Nabeel Sleem 
 

 
 
 

 
Supervisor 

Dr. Islam Abdeljawad 
 

 
 

This Thesis is Submitted in Partial Fulfillment of the Requirements for The Degree 
of Master of Finance, Faculty of Graduate Studies, An Najah National University, 

Nablus-Palestine. 
 

2024 



ii 

 
 
 
 
 
 
 
 
 
 

 
 

 
THE EFFECT OF THE AUDIT COMMITTEE 
CHARACTERISTICS ON THE EXTENT OF 

VOLUNTARY DISCLOSURE IN PALESTINE: 
ASSESSING THE MODERATING EFFECT OF 

CORPORATE GOVERNANCE 

 

 
 

 
 

By 

Farah Nabeel Sleem 

 
 

This thesis was Defended successfully on 05/09/2024, and approved by: 

 
 

Dr. Islam Abdeljawad 
Supervisor 

 
Signature 

Dr. Raed Iriqat 
External Examiner 

 
Signature 

Dr. Mofeed Thaher 
Internal Examiner 

 
Signature 



iii 

Acknowledgement 

First, I would like to thank Allah for granting me strength and knowledge to complete 

this thesis. Without his blessings, this achievement would not have be possible.  

I would like to express my deepest gratitude to my supervisor, Dr. Islam Abdeljawad 

for his support, guidance and invaluable feedback throughout this journey.  

I am profoundly grateful to my father and mother for their endless love, sacrifices and 

belief in me. Their support has been a constant source of motivation and inspiration.  

To my husband, thank you for your patience, understanding, and unconditional support.  

I would like also to extend my appreciation to An-Najah University for providing the 

supportive environment and resources that made this thesis possible. 

 

  



iv 

Declaration 

I, the undersigned, declare that I submitted the thesis entitled: 

THE EFFECT OF THE AUDIT COMMITTEE 
CHARACTERISTICS ON THE EXTENT OF 

VOLUNTARY DISCLOSURE IN PALESTINE: 
ASSESSING THE MODERATING EFFECT OF 

CORPORATE GOVERNANCE 

 
 
 

Unless otherwise referenced, I declare that the work provided in this thesis is the 

researcher’s work and has not been submitted elsewhere for any other degree or 

qualification. 

 

 

 

  



v 

List of Contents 
 

Acknowledgement ........................................................................................................ iii 

Declaration ..................................................................................................................... iv 

List of Contents .............................................................................................................. v 

List of Tables ................................................................................................................ vii 

List of Appendices ...................................................................................................... viii 

Abstract ............................................................................................................................ ix 

Chapter one: Introduction ............................................................................................. 1 

1.1 Preface ........................................................................................................................ 1 

1.2 Problem of the Study .................................................................................................. 3 

1.3 Importance of the Study .............................................................................................. 3 

1.4 Objectives of the study ............................................................................................... 5 

1.5 The study structure ...................................................................................................... 5 

Chapter Two: Literature Review and Hypothesis Development ................................ 6 

2.1 Introduction ................................................................................................................. 6 

2.2 Voluntary Disclosure .................................................................................................. 6 

2.3 Motivations of Voluntary Disclosure ......................................................................... 7 

2.4 The Main Theory of Voluntary Disclosure ................................................................. 9 

2.5 Consequences of Voluntary Disclosure .................................................................... 11 

2.5.1 More efficient markets (EMH) .............................................................................. 11 

2.5.2 Influence the financial decisions of corporation (Pecking order theory) ............... 13 

2.6 What is Corporate Governance? ............................................................................... 13 

2.6.1 Why Corporate Governance Has Received A lot of Attention Lately? ................. 14 

2.6.2 How Corporate Governance Varies Between Developing and Developed 
Countries and the Reasons Behind the Distinctions? ..................................................... 16 

2.7 What is Audit Committee and Its Role in Corporations? ......................................... 17 

2.7.1 Role of Audit Committee in Corporate Governance ............................................. 19 

2.7.2 Audit Committee Role in Internal and External Audit .......................................... 20 

2.7.3 The Role of Audit Committee in Internal Control and Preventing Fraud in 
Financial Reporting ........................................................................................................ 21 

2.8 What Are the Possible Ways that Help Mitigating Agency Problem? ..................... 23 



vi 

2.9 Literature Review and Development of Hypothesis ................................................. 25 

Chapter Three: Research Methodology ...................................................................... 32 

3.1 Introduction ............................................................................................................... 32 

3.2 Research design ........................................................................................................ 32 

3.3 Population and Sample ............................................................................................. 32 

3.4 Data collection .......................................................................................................... 32 

3.5 Variables Measurement ............................................................................................ 33 

3.5.1 The Dependent Variable: Voluntary Disclosure Index .......................................... 33 

3.5.2 Independent Variables: .......................................................................................... 33 

3.5.3 Control Variables ................................................................................................... 34 

3.6 The Regression Model .............................................................................................. 35 

3.7 Estimation Methods .................................................................................................. 35 

Chapter Four: Results and Discussion ........................................................................ 37 

4.1 Descriptive Statistics ................................................................................................. 37 

4.2 Correlation Matrix .................................................................................................... 38 

4.3 Regression Analysis .................................................................................................. 39 

4.4 Summary and Conclusion ......................................................................................... 46 

4.5 Recommendations ..................................................................................................... 48 

4.6 Limitations ................................................................................................................ 49 

List of Abbreviations ...................................................................................................... 50 

References ...................................................................................................................... 51 

Appendices ..................................................................................................................... 58 

?@ABCب  ................................................................................................................................ ا 

 

  



vii 

List of Tables 
 

Table (3.1): Summary of the study sample ..................................................................... 32 

Table (4.1): Descriptive statistics ................................................................................... 37 

Table (4.2): Correlation Analysis.................................................................................... 38 

Table (4.3): The impact of AC effectiveness, firm specific factors on the extent of VD40 

Table (4.4):The impact of CG and firm specific factors on the extent of VD ................ 41 

Table (4.5): The impact of CG, and firm specific factors on the relationship between 
AC effectiveness and VD ............................................................................. 42 

 

 

  



viii 

List of Appendices 
 

Appendix (A): Voluntary disclosure check list ............................................................... 58 

Appendix (B): Audit committee checklist ...................................................................... 60 

Appendix (C): Corporate Governance Checklist ............................................................ 61 

 

 

 

 

 

  



ix 

THE EFFECT OF THE AUDIT COMMITTEE 
CHARACTERISTICS ON THE EXTENT OF VOLUNTARY 

DISCLOSURE IN PALESTINE: ASSESSING THE MODERATING 
EFFECT OF CORPORATE GOVERNANCE 

By 
Farah Nabeel Sleem 

Supervisor 
Dr. Islam Abdeljawad 

Abstract 

This study seeks to investigate how Audit Committee (AC) and Corporate Governance 

(CG) influence the extent of Voluntary Disclosure (VD) in Palestine considering 

transparency and disclosure as fundamental pillars of CG system. In. It aims to 

investigate this conflict of interest by investigating what are the possible factors that 

influence the extent of voluntary disclosure in Palestine.  

It has been conducted on non-financial sectors in Palestine including 36 companies 

from 2009-2021. The analysis has been conducted by using multiple linear regression of 

Ordinary Least Square method (OLS) by using three models. AC effectiveness, CG 

effectiveness and VD index data were collected from disclosures on annual reports 

using a checklist. To begin with, the effect of AC on the extent of VD has been 

investigated as well as the effect of CG on the extent of VD, and the interaction term 

between AC and CG on the extent of VD. It has been found that AC and GG have direct 

influence on VD,; however, this impact is moderated by CG as the interaction term 

between AC and CG positively affect the extent of VD. 

This Study recommends that companies in Palestine adopt more voluntary disclosure 

practices, given the unique economic challenges posed by the Isreali occupation. 

Additionally, fostering stakeholder engagement through platforms for information 

sharing can enhance transparency and accountability. Introducing incentives for 

transparency practices and regularly evaluating corporate governance and disclosure 

methods are also critical for ensuring compliance and identifying areas for 

improvement.  

Keywords: voluntary disclosure, investigation committee, annual reports, transparency 

and accountability, corporate governance 



1 

Chapter one 

Introduction 

1.1 Preface 

Corporate financial disclosure is very important in today’s business environment 

because it helps firms to gain greater market share (Akhtaruddin & Haron, 2010). 

Agency and information asymmetry problems remain significant concerns for 

companies; however, many solutions were suggested to mitigate the impact of these 

problems. For example, Healy and Palepu (2001) argued that transparency and 

monitoring by the board helps in reducing agency problem. Also, Ho and Wong (2001) 

viewed disclosure as the best tool to link the gap between shareholders and managers.  

According to Nasir (2004), financial disclosure can be classified into two types, namely: 

mandatory and voluntary. The former includes financial information required by 

accounting regulators while the latter is optional. It means that managers have the free 

choice to communicate and disclose more information. Disclosure is not only essential 

for shareholders, but also for stakeholders, like creditors, employees and government 

(Sweiti & Attayah, 2013). Therefore, voluntary disclosure strengthens the 

communication and helps to build confidence between corporations and stakeholders 

(Sweiti & Attayah, 2013). 

In response to successive accounting scandals in the USA and other countries 

worldwide, the USA Congress addressed it by enacting a crucial law known as 

Sarbanes-Oxley-act 2000 (SOX), which has had a significant impact on the business in 

US. The Enron scandal was unfolded when the CFO employed a strategy known as off- 

balance sheet, presenting financial results in healthier appearance through conceal debts 

and World.Com declaring bankruptcy in 2002 after revealing accounting violations, by 

the head of internal audit.  

After these accounting scandals, the demand for disclosures significantly increased, so 

there was a heightened emphasis on understanding the various aspects of governance, 

especially with the rise ACs as their presence became a crucial necessity, drawing 

considerable attention to CG encompassing various relationships and responsibilities 

among several parties, ensuring transparency in these relationships (Drogalas et al., 

2016). The existence of ACs has emerged a key factor encouraging institutions to 



2 

disclose information, thereby enhancing the quality of financial information, ensuring 

transparency in financial reports, and installing confidence among stakeholders. 

Additionally, ACs play important role in assisting board of directors in overseeing 

management’s performance as the existence of ACs contributes in solving the 

information asymmetry problem through continuous supervision of the disclosure 

process (Drogalas et al., 2016). 

According to agency theory, firms are motivated to voluntary disclose information to 

lower agency problem leading to lower agency cost because VD acts as evidence that 

managers are operating effectively to achieve shareholder’s goals (Akhtaruddin & 

Haron, 2010). Furthermore, Agency problem leads to conflict of interest and 

information asymmetry because of the separation and control, where management have 

the motivation to achieve its goals rather than shareholder’s goals. Akhtaruddin & 

Haron (2010) suggest that there must be monitoring procedures to mitigate the influence 

of information asymmetry and agency problem since higher disclosure leads to decrease 

information asymmetry (Chang et al., 2008). 

This study is conducted due to consideration of agency and information asymmetry 

problems in Palestinian context since Palestine has an emerging economy with unique 

political and economic conditions. It is characterized by a high degree of political and 

economic uncertainty, the capital market is not efficient as other countries and the 

regulatory environment tend to be less mature because of Israeli occupation has 

imposed movement restrictions and barriers to international trade and economic 

development (Almusli, 2014). 

The Palestinian Stock Exchange (PEX), whose most important goals were to provide a 

safe environment for the development of investments, was established in 

1995.However, the political and economic instability in that period resulting from the 

failure to reach a comprehensive peace for the Palestinian territories and the Gaza Strip 

reinforced the problems. 

Finally, the majority of Palestinian companies are family owned, and the market is 

small with a number of dominant firms (Jaradat,2024). Which exacerbates the agency 

problem. Consequently, the main question that this study is; what are the possible 

mechanism that affect the extent of voluntary disclosure in Palestine?  



3 

1.2 Problem of the Study 

While the previous studies on the determinants of voluntary disclosure have 

predominantly concentrated on companies in the USA and other developed countries 

(e.g., Buzby, 1975; Camfferman, 1997; Cerf, 1961; Choi, 1973; Cooke, 1989; Depoers, 

2000; Ferguson et al., 2002; Firth, 1979; Frost & Pownall, 1994; Gray et al., 1995; 

Inchausti, 1997; Malone et al., 1993; Meek & Gray, 1989; Meek et al., 1995; Mitchell et 

al., 1995; Raffournier, 1995; Turpin & DeZoort, 1998). However, as Samaha and 

Dahawy (2011) noted, only a limited number of studies have explored disclosure 

practices in developing economies (Needles, 1997), highlighting the need for more 

research in such contexts  

Talpur, Lizam, & Zabri, (2018). Highlighted that there is a limited understanding of the 

influence of corporate governance on the association between voluntary disclosure and 

the existence of audit committee and its effectiveness. Therefore, this study seeks to fill 

this gap, by investigating the relationship between voluntary disclosure and existence of 

audit committee with primary focus on how corporate governance might affect and 

moderate this relationship. To address the objectives of this study, it will be an attempt 

to answer the following questions:  

1. What is the relationship between the efficiency of audit committee and the extent of 

voluntary disclosure? 

2. How does corporate governance influence the relationship between existence of audit 

committee and the extent of voluntary disclosure? 

Therefore, by addressing these questions, this study seeks to provide valuable insights 

into the relationship between audit committees, corporate governance and the voluntary 

disclosure landscape.  

1.3 Importance of the Study 

This study has diverse contributions to various layers of society and different categories. 

It assists governments and decision-makers in applying governance in their country's 

laws and systems leading to increased transparency in the market. Governments 

recognizing the importance of voluntary disclosure enforce policies that encourage such 

disclosures. 



4 

Additionally, VD address the issue of information asymmetry facilitating optimal 

resource allocation creating a competitive environment in the financial market and 

urging companies to disclose more to attract investors and reduce the cost of capital. 

When companies disclose more, this will make it in a stronger position by gaining 

competitive advantage because it will improve the relationship with customers and 

investors, and a good reputation in the market (Bolton & Kacperczyk, 2021). 

Furthermore, it helps the board of directors in shaping a structure that aligns with the 

disclosure policy, making companies more aware of the suitable structure that ensures 

transparency enhancing investor trust. Understanding the significance of having audit 

committees that safeguard the company from managerial exploitation prompts 

companies to adopt the right disclosure structures (Al Amosh & Khatib 2021). 

When all or most companies adhere to corporate governance, it results in an economic 

uplift for the entire country (Velashani & Mehdi, 2008). Companies prioritize 

experienced and competent audit committees because it leads to better strategic 

planning and risk management. According to (Velashani & Mehdi, 2008), voluntary 

disclosures also improve a company's image when revealing its social responsibility, 

appealing to investors and customers, and reducing information asymmetry, which in 

turn lowers transaction cost.  

It also seeks for investor protection, because once the investors invest in a firm, they 

gain certain rights and powers. All of them including minority shareholders and 

creditors have the right to receive corporate information because they exposed to risk of 

exploitation and not receiving the return on investment and to keep returns and profits 

to themselves instead of returning the money to outside investors (Alyousef, & 

Alsughayer, 2021). 

The finding of this study has the following contributions. To begin with, prior literature 

and empirical studies focus on only on firm characteristics, and didn’t take into 

consideration the big picture which, includes AC efficiency and BOD in effecting the 

level of voluntary disclosure. Also, most of the literature has focused on the mandatory 

disclosure, insufficient attention was given to voluntary disclosure although it is 

complementary to financial disclosures, and can help investors to take rational decisions 

by examining where the company is going and its policies, values, vision, etc.  



5 

Then, Palestine, as an emerging an occupied country its situation, is more critical and 

very essential to study it, so our study has contributed in understanding the CG in 

Palestine. Finally, the finding of this study has implications on Palestinian firms and 

regulatory authorities, since there is a heavy reliance is placed on CG to enhance 

transparency and disclosure 

1.4 Objectives of the study  

The main objective of this study is to analyse and understand the relationships between 

corporate governance mechanisms, especially, the role of AC, and VD in Palestinian 

companies. The study seeks to: 

1. Investigate how the effectiveness of the audit committee affect the level of voluntary 

disclosure  

2. Examine the role of corporate governance in shaping and moderating the relationship 

between the audit committee and voluntary disclosure  

1.5 The study structure  

The structure of this study is as follows: the first section contains the introduction of the 

study where the study problem and importance are reviewed. The following chapter 

presents theoretical framework including definitions and discussion of VD theories, 

reasons and consequences, CG and its importance and AC. Chapter 3 reviews the 

relevant literature review and hypothesis development. Chapter 4 explains research 

methodology, data collection and data analysis methods used in this thesis, Chapter 5 

discusses research analysis and hypothesis testing. The sixth section previews 

recommendations and limitations of the study. 

  



6 

Chapter Two 

Literature Review and Hypothesis Development 

2.1 Introduction 

This chapter provides a theoretical framework of voluntary disclosure, discussing the 

reasons behind VD and consequences of VD. Moreover, it aims to discuss the concept 

of corporate governance and its importance and how it might differ across the 

economies. Also, the concept of AC and its importance have been discussed. Chapter 

two provides a comprehensive understanding of all variables that we are testing in this 

thesis, also shows hypothesis development. Finally, it outlines the hypothesis 

development process.  

2.2 Voluntary Disclosure  

Disclosure means to timely release all relevant information of company performance 

that may influence investor’s decision including positive and negative data. There are 

two types of information that companies disclose, including: mandatory and voluntary. 

The former includes financial information related to fiscal year that aims to convey 

basic information (Ho & Wong, 2001). On the other hand, the latter goes beyond 

minimum requirement, encompassing areas like corporate social responsibility, forward 

looking information and strategic plans that reveal company’s plans for future unlike, 

mandatory information that discloses past performance. (Ho & Wong, 2001) 

There are many types of voluntary disclosure: total disclosure, social environmental 

disclosure and intellectual capital disclosure. Each type of which disclosures targets a 

specific category of investors. The first type helps investors in stock markets in 

predicting future earnings because this type of information includes all historical and 

financial information. The second type also serves investor’s needs because it discloses 

deal with strategic and competitive information which are main part of firm’s future 

prospect. Finally, the third type targets stakeholder’s need for protects and a proof of 

firm’s legitimacy in its society (Samaha et al., 2015).  

The more types of voluntary disclosure the narrower the problem of information 

asymmetry, so voluntary disclosure is about communication all economic information, 

whether financial or nonfinancial to create a clear picture and expectations about the 



7 

company’s financial performance (Mwangi & Mwiti, 2015). Voluntary disclosure 

depends on company’s decision to disclose or not in other words its management’s 

choice to communicate accounting and other information to end users. The management 

considers the voluntary disclosure useful since it knows more about the company 

protecting the company legally (Asava, 2013). Moreover, when a company relies on 

voluntary disclosure, it anticipates a favourable response from investors, the availability 

of this information allows investors to efficiently allocate scare resources and help them 

in assess investment options in way that is more rational. When one company decides to 

release more voluntary information, others are likely to follow suit by providing and 

disclosing additional details as this collective action contributes to market efficiency  

(Mwangi & Mwiti, 2015).  

2.3 Motivations of Voluntary Disclosure  

Capital Market Transaction Theory  

According to a study of Healy & Palepu (2001), when managers want to raise capital by 

attracting investors, information asymmetry creates a problem for them in attracting 

capital since they know more information about company more than external investors 

who will ask for a higher rate of return because of information asymmetry (Velashani & 

Mehdi, 2008). Consequently, managers have reasons to share more information to 

bridge this information gap, making it easier and less costly for company to attract 

external funding. Similarly, Petrova et al. (2012) mentioned that investors demand 

premium for bearing information risk due to information asymmetry. Therefore, 

voluntary disclosure can reduce company’s cost of capital, attract more investors, and 

reduced information asymmetry problem.  

Corporate Contest Theory 

Corporate contest theory is based on fact where board of directors and investors hold 

manager accountability for company’s current performance. Shehata (2014) mentioned 

that a relationship between CEO turnover and poor stock performance as poor stock 

performance leads to the risk of hostile takeover that results to high CEO turnover. 

Therefore, managers prefer to disclose more information to protect their reputation 

because stock performance is tied with their ability to manage and enhance stock 

earnings.  



8 

Management Talent Signalling Theory 

This theory mainly focuses on the problem of information asymmetry and how it can be 

reduced. That the party possessing more information will signal it to others. (Cotter et 

al., 2011). Signalling theory states that when managers want to communicate the quality 

of their company relying on voluntary disclosure to assist investors in making more 

rational investment decisions. Cotter et al. (2011) points out that high quality companies 

openly communicate its quality to market without hesitation. However, managers of 

firms with neutral results have the incentive to disclose positive news, to avoid being 

suspected of poor performance.  

Smart and skilled managers have a greater incentive to disclose more information 

because the value of the company is determined based on the manager's ability to create 

a good image for investors of the company in terms of their ability to anticipate and deal 

with future changes. Marfou et al. (2023) reveals that investors value the company in 

the market depending on the talents and ability for managers to understand and adapt 

the continuous economic changes in the company, which encourage investors to have 

more trust in the company.  

Litigation Cost Hypothesis 

Litigation cost theory suggest that the fear of being sued influence when and how the 

managers choose to disclose information. In other words, there are two main effects: the 

first is the threat of legal action encourage management to disclose more information 

voluntarily while the second is that litigation cost might reduce manager’s incentive to 

disclose certain types of information specially looking for information. Cotter et al. 

(2011) noticed that managers tend to disclose bad news about the company’s earning 

earlier, because they think by doing, so they reduce the likelihood of being taken to the 

court.  

Propriety Cost Theory 

This theory states that firms do not have the incentive to voluntary disclose because 

they have concerned that disclosure might damage their competitive in the market 

(Healy & Palepu, 2001).These studies suggest that firms will not disclose information 

because of the market sensitivity, like the threat of new entry, or even for the existing 



9 

competitors. This theory is unlike the five theories above because it assumes that there 

is no conflict between managers and shareholders (Shehata,2014) 

Political economy theory  

 This theory is based on the idea that all social, economic and political events are 

interconnected. (Cotter et al., 2011) defined it as “the social, political and economic 

framework within which human life takes place”, so it focuses on the concept that 

business operation must take into consideration the interplay of society and politics 

(Cotter et al., 2011).From political economy theory, other theories have been developed, 

which are the stakeholder theory and legitimacy theory 

Stakeholder Theory 

Stakeholder theory views the organization as an integral part of social system, and 

system involves various groups that work and collaborate to achieve their goals. They 

are crucial part of the system because the achievement of organization’s goals cannot be 

achieved without satisfying stakeholder’s needs and interests. Cotter et al. (2011) 

elaborates that corporation have stakeholders, that is, groups and individuals who 

benefit from or are harmed by, and whose rights are violated or respected by, corporate 

actions.  

Therefore, in addition, stakeholder theory states that when firm’s management make 

decisions it must take into consideration stakeholder’s interest which creates incentive 

for firms to share more and specific information to stakeholders in order to inform them 

that the firm is complying with their needs and requirements.  

2.4 The Main Theory of Voluntary Disclosure  

Agency theory  

In alignment with Jensen and Meckling’s agency theory, they mentioned that concept of 

information asymmetry is an important aspect in viewing and understanding the nature 

of relationship between principals and agents in organization. Therefore, the concept of 

information asymmetry refers to situation where one-party agents or managers have 

more information compared to other party or shareholders. 

One of the most fundamental challenges in the economy is that entrepreneurial 

companies are trying to attract household savings, so that they can help them in funding 



10 

their new business, however, matching the interest between household saving and 

entrepreneur is not an easy task. This is because companies know more information 

about their business, so they may overstate its value, which results in information 

asymmetry problem, and will by default encourage companies to exploit their savings. 

 The problem of information asymmetry, calling it “lemon problem" in his study "The 

market for lemons, quality uncertainty and the market mechanisms" which occurs when 

one party knows more than the other. Suggesting that half of business ideas in market 

are good and the other half is bad, the investor is rationale he will make a rationale 

decision based on his knowledge about a particular company (Panda & Leepsa, 2017). 

Nevertheless, here is the predicament: companies know more about their performance 

more than investors do, so they may overstate bad ideas, so the investors will think that 

both good and bad ideas are the same making capital market undervalue some good 

ideas and overvalue some good ideas (Jensen & Meckling, 2019). 

Agency problem as mentioned earlier in the literature occurs because investors who 

invest their money in a business do not run the show because this is management’s role. 

As a result, once the investors invest their money, management is likely to use their 

money for their own gain, like paying themselves too much, or take decisions that hurt 

investors like investing in risky projects (Jensen & Meckling, 2019). 

This issue can be better explained by agency theory because it is considered one of the 

oldest and well-known theories in finance. In the literature of the 1960s and 1970s, they 

refer to agency problem as the problem of risk sharing among parties in the corporation 

(Panda & Leepsa, 2017). 

The problem of agency with its simple definition is as follows: It is based on the 

existence of the agent responsible for managing the capital and operations of the 

company, and the owners of shares or capital. In brief, it arises due to the separation of 

ownership from management, and the pursuit of managers to achieve their own goals, 

instead of pursuing the basic goal of the institution and it is the maximization of the 

wealth of the owners.  

It is worth noting that the agency problem has many types, including principal agent 

problem, and it is one of the most famous and widespread types, that occurs between the 



11 

owners and the managers, because managers in these type mangers are more familiar 

with and know what is happening in the company. They seek behind their personal 

interest and compensation maximization (Panda & Leepsa, 2017) This type of conflict 

between interests occurs because of the lack of adequate oversight from the owners of 

capital over the work of managers, in addition to the costs and effort to monitor the 

performance of managers and their decisions. 

However, the second type of agency problem, it is widely spread in the developing 

countries like Palestine because it has a lot of family business companies, which is 

called principal-principal problem, this type occurs among the owners themselves. In a 

public shareholding company, there are two types of investors. Investors, who own a 

large share of the company’s shares, and investors who own limited share of company’s 

shares. In short, there is major owners and minor owners. Major owners have more 

power to vote and make decisions that serve their own interests. In contrast, minor 

owners face difficulties in protecting their funds and interests (Panda & Leepsa, 2017) 

The last type of agency problem exists between creditors and principal; shareholders 

prefer to invest in risky projects to generate higher gains. If the project succeeds, the 

creditors will only receive the interest amount and wont share in the profits, however if 

the projects fail, shareholders will default on debt and won’t be able to pay the original 

loan and interest amount. 

2.5 Consequences of Voluntary Disclosure  

2.5.1 More efficient markets (EMH) 

Studying the characteristics of effective board of directors, audit committee plays curtail 

role in corporate governance guaranteeing timely and high quality of information and 

oversee reporting process and ensure transparency and accuracy. In efficient markets, 

where investors rely on available information to make informed decisions, voluntary 

disclosure becomes strategic imperative.  

The efficient market hypothesis was first developed in the 1960s, suggesting that 

financial markets are efficient as they absorb and reflect all available information. Later, 

(Pesaran 2010) contributed to this discussion by introducing the concept of random 



12 

walks, which assumes that stock price movements are unpredictable and follow a 

random pattern, as they are not influenced by past price movements. 

The important issue is that this hypothesis discuses is the impossibility of achieving 

higher than the average return, because all information is equally available to everyone, 

adding to previous point that it’s impossible to achieve higher return using past 

historical data because all ready all available information reflected in asset or security 

price (Panda & Leepsa, 2017). 

It has three forms, namely: weak, semi-strong, and strong. The weak form of EMH 

consists of historical prices, and trading volumes that is already reflected in the market, 

that is why studying past data is not useful for making profitable trades. While the semi-

strong form of EMH claims that prices include all publicly available information, which 

means that it is impossible to achieve higher return because stock prices reflect fast to 

new information. Finally, the strong form of EMH takes into account all information, 

public and private information, although it includes private information but it is also 

impossible to make higher return because stock prices would already reflect these 

information (Mwangi & Mwiti, 2015). 

In addition, many empirical studies have proved that companies with robust governance 

means having effective board of directors and audit committee are likely to engage 

more in voluntary disclosure, which enhances market efficiency. (Ho & Wong 2001) 

proved that there is a positive relationship between corporate governance and voluntary 

disclosure. In conclusion we have to know that efficient market hypothesis is not a 

crystal ball for predicting future market moves, it helps us understand the general 

direction in market, and voluntary disclosure contributes in making the market more 

efficient. 

 It involves correcting any misevaluation in the market, because information asymmetry 

and agency problem impedes allocating resources in capital market. Therefore, 

management have the incentive to correct this misevaluation by disclosing more, since 

stock value depends on information available in efficient markets (Velashani & Mehdi, 

2008). 



13 

2.5.2 Influence the financial decisions of corporation (Pecking order theory) 

Information asymmetry significantly influences a company's capital structure and 

financial decisions, and this relationship is closely tied to both the pecking order theory 

and voluntary disclosure. According to (Wang et al., 2011), information asymmetry 

between management and investors is a central driver of the pecking order theory. This 

theory suggests that companies prefer internal financing first, followed by debt, and use 

equity financing as a last resort. 

(Chen and Chen 2011) explain that companies initially rely on retained earnings to 

avoid the costs associated with disclosing additional information. When internal 

resources are insufficient, debt financing is chosen over equity because debt is less 

costly and signals the company’s strong financial health. Equity financing, however, is 

less preferred because external investors demand higher returns, and it may signal that 

the company’s resources are inadequate, potentially lowering stock prices. 

The pecking order theory can be seen as a consequence of voluntary disclosure 

practices. Increasing voluntary disclosure helps to reduce information asymmetry by 

providing investors with more transparent and accurate information about the 

company's financial position. This transparency builds trust among investors and 

enhances the company's ability to access financing options. For instance, when a 

company improves voluntary disclosure, it mitigates the negative signals associated 

with equity financing, thus lowering the reluctance to use this option. Additionally, 

increased transparency can help companies attract strategic investors and creditors by 

clarifying their financial health (Wang et al., 2011). 

2.6 What is Corporate Governance? 

Corporate governance has many definitions depending on the perspective and context. 

Under narrow definition, the big picture is not complete focusing only on finance 

aspect, like how the outsider shareholders will protect themselves from the exportation 

from the insiders, and discuses creditor’s rights that are reflected in collateral and 

bankruptcy laws. Shleifer & Vishny (1997) has defined CG in their seminal review as: 

“corporate governance deals with the ways in which suppliers of finance to corporations 

assure themselves of getting return on their investment”. However, the concept of CG 

can be extended to include other parties not limited to suppliers of finance.  



14 

A broader definition of corporate governance can make the big picture more complete 

and clearer. The head of Cadbury Sir Adrian has defined the CG as: “the system by 

which companies are directed and controlled” as Cheffins (2013) defined it as:” the 

complex set of constraints that shape the ex-post bargaining over the quasi rents 

generated by the firm” 

CG can be defined as: “the process of supervision and control…intended to ensure that 

the company’s management acts in accordance with the interests of shareholders" 

(Parkinson, 1993, p. 159). 

Corporate governance (CG can be classified into two-man categories. The first category 

is concerned with behavioural pattern, which focuses on the actual behaviours of 

corporations and how they operate, this pattern can be measured by efficiency, 

company’s growth, company’s relationship with stakeholders (Claassen, 2006). While 

the second category is concerned with normative framework referring to the rules and 

regulations under which company operates, including legal system, financial and labour 

market. In other words, studying a single country or firm, the behavioural category will 

be needed because a pattern of behaviour or practices within the same country or firm 

should be focused on. 

 This category goes into details of the mechanisms that is used in a specific entity or 

country, for example, it looks in how a board function the connection between company 

and other multiple stakeholders. On the contrary, normative framework is used when 

comparing and investigating differences in two areas, it studies how rules and regulation 

differs across the countries and how it will likely to influence the behavioural pattern in 

the firm. In normative framework, the definition of CG makes more sense because it 

takes into consideration how the difference in framework across the countries will affect 

the behavioural pattern.  

2.6.1 Why Corporate Governance Has Received A lot of Attention Lately? 

The world is rapidly changing and evolving, and challenges always exist and ongoing. 

In 1973, many world conditions have changed to include economic changes resulting 

from the technological improvement, industrial revolution has affected the corporate 

governance because the technological improvement has led to excess capacity and 

declining costs. In 1890s, the capital market contributed in dealing with excess capacity 



15 

by depending on merger strategy to absorb the capacity, while in 1980s it played a 

major role in dealing with excess capacity by leverage acquisition and takeover.  

However, in 1800s this era was criticized because of “Robber Barons” that has 

emerged; they took advantage and exploiting workers, so the way they were accumulate 

wealth was unethical and unfair. In 1980s, it was criticized due to hostile takeover is 

when one company seeks to acquire another company against the wishes of the target 

company's management, the total value of mergers and acquisitions during the 1980s 

amounted to $2.6 trillion.Criticisms often lead to public discourse and, in some cases, 

influence changes in policies or regulations. It is stated in the text that criticisms in both 

eras eventually led to changes in public policy, including restrictions on the functioning 

of capital markets. This has also led to an excess of productive capacity, due to excess 

capacity, companies face the necessity of exiting or withdrawing from the market, is 

also happening now (Jovanović & Grujić,2016) 

Therefore, Jensen & Meckling (2019) mentioned that there is an urgent need for 

managers, policy makers, and researchers to understand the magnitude of these forces 

and their general implications. In other words, what happened in industrial revolution 

one and two is always happening since there is always a continuous improvement, 

which emphasize the importance of giving attention to create a strong corporate 

governance system that has the ability to deal with rapid changes and uncertain events. 

In this section, previous literature has discussed, to discover how companies are 

managed because crises are signals and manifestations of many structural reasons of 

why CG has become a significant element in economic development and a more 

important policy issue in many countries.  

According to Jovanović & Grujić (2016) many reasons were identified, starting with: 

privatization, when companies used to be owned and controlled by government, then 

shifted to be privately owned, this changing that occurred in company’s structure from 

being public to be private will be challenge in matters of shifting in ownership and 

changing finance method. The second reason is technological progress that already 

happened before in the industrial revolution, new technologies that emerged in 19th 

century like innovations that includes sewing machine, and high-speed consumer 

packaging led to a surge in productivity, these all-new technologies has transformed 

various industries to make old methods outdated.  



16 

Hence, Liberalization, which refers to reduce government restrictions, made markets 

more open and increased competition. Also, price deregulation limited the government 

role in controlling prices in some industries. Furthermore, globalization that reduced 

trade barriers, makes governance more complex and more difficult. Also, increasing 

business volume and the continual growth of financial intermediaries made the 

mobilization of capital not in the hand of principal owner, due to large volume of 

business they cannot catch all details the concerns finance methods. Therefore, 

delegating the responsibility of run the investments, the presence of governance system 

becomes an urgent matter (Jovanović & Grujić,2016) 

In addition, deregulation and reforms by changing in regulations have significantly 

influence financial environment locally and globally because the established rules of 

governance have replaced by new ones, which create inconsistency. Finally, the 

international financial integration has increased, which led to increase in cross border 

activities, including trade and investment. This has introduced difficulties in CG, as 

different cultures and practices may clash when companies from different regions 

engage with each other (Jovanović & Grujić,2016) 

2.6.2 How Corporate Governance Varies Between Developing and Developed 

Countries and the Reasons Behind the Distinctions? 

Examining and investigating distinctions in CG between developing and developed 

countries, and studying business structure and environment in both countries, allows us 

to gain a deeper understanding of how GC will differ depending on the current state of 

the country It is because what holds true for developed countries may not necessarily be 

applicable to developing countries. 

Millar et al. (2005) has discussed the differences of CG in emerging markets in Asia 

and US. The business system in emerging countries includes countries that are in the 

process of entering the global business environment, including China, Malaysia, 

Thailand, Indonesia and India, these countries are experiencing rapid economic growth 

and more participation in international trade, it is structured on relationship system, for 

example in Thailand and Indonesia, the market is dominated and overseen by the largest 

10 families. 



17 

This relationship structure will lead to conflict of interest between large shareholders, 

managers and the minority shareholders, because this kind of business structure raises 

the risk of minority shareholders being exploited. Hence. Relationship based business 

system has a higher chance for resource misallocation. This relationship-based system is 

likely to have lower transparency, however insufficient level of transparency will 

prevent the company from attract external capital, higher cost of capital (Millar et al., 

2005). 

Developed countries adopt market-based relationship, or Anglo-Saxon business system, 

or capitalism system. This system was dominated in the 19th and 20th centuries 

emphasizing on shareholder value, and often prioritize their interest over other 

stakeholders as well as on adaptability and responding to market conditions  (Millar et 

al., 2005). 

2.7 What is Audit Committee and Its Role in Corporations? 

To successfully have strong governance system, two strategies should be relied on 

according to. The first strategy is external discipline mechanisms such as takeover 

threat, competition and real market factors the ones discussed previously in this study. 

However, the second strategy depends on internal mechanisms in the company itself 

like owner ship structure, board of directors, large shareholders and audit committees 

(Al-Baidhani, 2014).  

Audit committees play important role on many perspectives, including its relationship 

with internal audit, external audit, board of directors, and management. Audit 

committee (AC) ensures transparency and integrity in financial reports by reviewing 

them before approval of the board of directors. In this section, the concept and history 

of AC and its history will be examined and discussed which will eventually influence 

the extent of voluntary disclosure (Al-Baidhani, 2014). 

Consequently, AC is one of the CG tools or mechanisms that assist in achieving strong 

CG structure, it contributes in monitor company’s management, internal and external 

auditors to protect and ensure achieving shareholder’s goal to increase their wealth (Al-

Baidhani, 2014). The success of AC is contingent on its ability to fulfil its oversight 

responsibility and its relationships with other participants in CG, including board of 

directors, external and internal audit (Rezaee et al., 2003).  



18 

Rezaee et al. (2003) pointed out that, companies in mid-twentieth has voluntarily 

created ACs to provide effective communication and relationships between board of 

directors and external audit. Rezaee et al. (2003). states that high quality of CG means 

that everyone in the company should work together making sure that management 

actions are align with decision makers (board of directors), and Board of Directors 

(BOD) are working for achieving owner goals. BOD oversees and ensure that managers 

are going in the right direction, therefore, BOD and management must work together to 

ensure that company is following the rules and acting ethically.  

The report of the public oversight Board (POB) has stated that the failure of CG in US 

is due to the failure of board of directors of not making the system operate as it should. 

The former president of America George W. Bush has mentioned the seriousness of 

CG, manipulation and fraud problems, by saying:” Through stricter accounting 

standards and tougher disclosure requirement, corporate America must be made 

accountable to employees and shareholders and held to the highest standards of 

conduct” (Rezaee et al., 2003). 

The Blue-Ribbon Committee (BRC) came up with three conclusions regards monitor 

and oversight responsibility of CG, including AC: A) High quality of financial reports 

can be achieved by open and continual communication among board of directors, AC, 

internal audit and external audit. B) When CG apply oversight function in financial 

reports in publicly traded companies this mitigate financial stamen manipulation. C) 

High quality and transparency of financial reports will increase investor’s trust in capital 

market.  

In addition, the authorized voice for American business has proposed six significant 

principals of CG: 1) the board of directors should select CEO chief executive officer to 

manage and supervise other executives and management. 2) Management is responsible 

for achieving shareholder’s goals, through effective and ethical practices. 3) 

Management has to prepare financial statements with supervision of board of directors 

and audit committee. 4) Board of directors and audit committee should hire independent 

accounting firm for conducting financial statement audit to main integrity and 

transparency in company’s financial reporting. 5) The independent accounting firm 

should be independent. In other words, it must not have any personal relationship with 



19 

the company being audited. 6) Corporations must deal with their employees in fair and 

equitable manner (Rezaee et al., 2003) 

ACs responsibilities include: making recommendation for BOD, reviewing and oversee 

financial statements and discuss it with management and independent auditors, issuing 

an audit report that must be included in company’s statements, manage internal audit 

activities and external audit (Rezaee et al., 2003). 

2.7.1 Role of Audit Committee in Corporate Governance  

AC, is the main significant mechanism of CG, to mitigate agency problem and improve 

disclosure, (Ho & Wong, 2001) is consistent with this view agency theory suggest that, 

the creation of AC is established to reduce information asymmetry, managerial 

manipulation, and enhancing disclosures (Salehi et al., 2014). AC is a significant part of 

the firm’s monitoring system, so it is considered a crucial component of CG system 

(Cohen et al., 2002). 

The strength of CG is tied with the efficiency of AC, because its responsible for risk 

assessment and the backbone that ensures that there is no manipulation is exercised by 

management. (Cohen et al., 2002). The AC oversees financial statement quality (e.g., 

documented that usually weakness in governance structure is because of low financial 

statement quality, earning manipulation and fraud (Cohen et al., 2002).  

There is a recent demand by investors for more accountability from corporate board and 

AC; Corporate board means the system by which company is controlled, which includes 

AC who oversight management and ensure transparency that investors are demanding 

for (Cohen et al., 2002). Most AC duties and responsibilities are connected directly to 

AC roles in CG, because the independence of AC, its composition and experience are 

strongly related to company’s CG. AC is a very essential part because all company’s 

stakeholders have relationship with it, even the regulatory bodies. 

 In 1987, Treadway report has described AC as an effective mechanism for CG; 

however, companies must review AC’s nature and its performance to make sure that it 

is doing its role appropriately. Al-Baidhani (2014) suggest that there is a positive 

market reaction when AC has accounting and financial experts. Also, Al-Baidhani 

(2014) point out that in order to have effective AC that seeks to enhance audit quality, 



20 

then external auditors must not provide non-audit services. In addition, Chan & Li 

(2008) found out that having independence directors for both AC and BOD will 

increase firm value.  

The Sarbanes-Oxley Act of 2002, that was its main purpose to protect shareholders, has 

an important impact on CG and corporate disclosure as well. If organizations want to be 

accepted in stock exchange market, they have to adopt and implement good governance, 

and ACs must play broader role in CG role and must be strongly supported, so good CG 

can be achieved through the existence of AC. 

2.7.2 Audit Committee Role in Internal and External Audit 

Internal audit refers to evaluation of company’s processes, practices and its actions, its 

main purpose is providing feedback and assurance to management and the BOD. In 

other words, the company’s operations are effective, financial statements are reliable 

and it is aligned with acceptable law and standards. However, the scope of internal audit 

task and role is determined by AC.  

The AC is responsible to enhance internal auditor’s independence, which means that 

they are not involved in day-to-day activities, which allows them to provide unbiased 

judgments. Internal audit provides all necessary information to AC in order to allow AC 

accomplish its oversight function. While AC supports internal audit’s opinions and 

feedbacks, and bring up any irregularities in management and financial problems as 

well to BOD after discussing it with internal audit, it is responsible for hiring the head 

of the internal audit. Hence, they manage the frequency and durations of meetings with 

internal audit, and make sure that the head of internal audit can communicate always 

and directly with AC.  

AC members should have financial experience because one of its main responsibilities 

is to monitor financial reporting and internal audit, so they must have the financial or 

accounting experience to understand any technical issues related to internal audit. The 

AC takes care of any obstacle or problem that may appear with internal audit, by 

conducting the necessary investigations and depending on internal feedback (Younus, 

2021).The relationship between AC and internal audit has been supported by many 

studies. Al-Baidhani (2014). assured that independence and having financial experience 

has a complementary influence on the relationship between AC and internal audit.  



21 

AC also has a major role in determining the scope of external audit function that Al-

Baidhani, (2016), and (Younus, 2021) indicated that AC chooses external audit by 

reviewing their proposals, and then gives its recommendations to BOD whom it 

believes are most suitable to perform external audit. It is also must have direct 

interference when changing external auditor. In order to protect and preserve 

shareholders interest, it must review and oversee the nature of work that external 

auditors are doing, it must evaluate their effectiveness, and ensure that there are no 

personal relationships between management and external auditors. It also may ask 

external audit to provide a report of feedback of any disagreement between them and 

management. 

It must make sure that external audit only provides audit services, to prevent any 

conflict of interest, and to guarantee high quality of audit. Beasley et al.(2009)'s. 

findings focus on very important matters and qualification that AC members must 

possess, which are, greater governance experience about the best practices and financial 

reporting standards.  

In fact, they have to be more independent, not influenced by management, and having 

lower stockholding in the company because it contributes in increasing independence. 

All of these previous qualifications allow the AC to deal with any unfavourable audit 

reports by external audit, protecting external auditors from dismissal from BOD, by 

communication and discussions with external audit. That leads to more effective 

decision making, and preventing knee-jerk reactions like dismissal of external auditors. 

 In other words, effective AC facilities the communication between BOD and external 

audit. Al-Baidhani (2014) also support these findings, they found that when AC is more 

independent and have financial experience, the company would place a higher value of 

external audit, because this contributes in improving governance structure.  

2.7.3 The Role of Audit Committee in Internal Control and Preventing Fraud in 

Financial Reporting  

Al-Baidhani (2014) has defined internal control as: the system, procedures and policies 

that the company has established to enhance and maintain the overall health and 

effectiveness of company, on all aspects and especially the following: 



22 

• The financial aspect that relates to the quality and accuracy of financial reports, 

ensure. 

•  The compliance of laws and regulations to protect itself from any potential legal 

issues. 

•  The efficiency and effectiveness of operations that aim to achieve company’s goals 

and the optimal allocation of resources.  

In other words, the internal control is realm and cornerstone for the governance system. 

However, it is important to emphasize that internal control contributes in mitigate errors 

and problems, but that does not guarantee the prevention of all errors since it seeks to 

create a structure that facilities the transparency, communication and increasing the 

accuracy in financial reports. 

AC oversees internal control through the reports that received from management, 

internal and external audit. it has the right and the power to receive any information at 

any time, which allow it to make the required investigation about any issue 

appropriately. AC discusses and communicates any issue with management internal and 

external audit, and then submits its feedback and reports to BOD, about the discussions, 

results and recommendations regard the performance of internal control, and its 

suggestions to maintain efficient internal control system.  

The most important responsibility for AC is to monitor and oversee internal control, the 

importance of internal control has mentioned and indicated in BOD and shareholders 

may have enquiries regard the performance of internal control, in order to evaluate its 

effectiveness and efficiency (Al-Baidhani, 2014). External and internal audit assist AC 

in reporting internal control performance and deficiencies for the concerned authorities.  

In other words, to enhance internal control system, AC must monitor and oversee 

company’s financial reports and ensure company’s compliance with rules and 

regulation. Al-Baidhani (2014): suggests a positive relationship between independent 

AC, and AC with financial and accounting experience are less likely to have problems 

with internal control Hence, the there is a higher opportunity for fraud to exist when the 

monitoring on internal control is poorly designed. It is a significant component of 

internal control system (Asare et al., 2008) The quality of AC performance is crucial 



23 

because it directly affect the possibility of existence of fraud in financial statements and 

management (Beasley,1996).  

2.8 What Are the Possible Ways that Help Mitigating Agency Problem? 

The literature has discussed possible ways that might the mitigate agency and 

information asymmetry problems like:  

Incentive Contracts 

Incentive contracts aim to motivate agents (managers) to act and take the decisions that 

align with interest of organization including a variety of forms, like shareowner ship, 

stock option (giving the right to purchase the stock at pre-determined price) and the 

threat of dismissal (it creates motivation through linking job security to performance) 

(Milosevic et al., 2015). However, incentive contracts might be expensive, because 

when unfavourable scenarios happen and the company does poorly, the managers still 

have the right to get their part of compensation that is the concern when managers are 

self-dealing and prioritize their interest over what is the best for company. 

 In addition, Milosevic et al. (2015) suggest that managers strategically plan when to get 

the option, they plan to get it before the announcement of positive news, because these 

stocks might become more valuable.  

Large Shareholders 

The significance of large shareholders lies in the alignment of their interest with the 

interest of shareholders, and their role in mitigate the agency problem is substantial 

because of their possession of control and authority, derived from their significance 

ownership stake in the company. This ownership enables them to actively supervise and 

oversee management practices to ensure that their interest is consistently given priority. 

However, the effectiveness of large shareholders role in mitigating agency problem 

depends on the legal environment. For example, in countries that have sophisticated 

legal systems, where the rights are well protected, there will be more effective in 

reducing agency problem. On the contrary, countries with weak legal system, the 

protection of shareholders right is less robust (Milosevic et al., 2015). 

Having large shareholders is healthy and useful but to a certain point because ownership 

proportions must be taken into consideration to choose the optimal percentage of 



24 

ownership. Milosevic et al. (2015) found out those large shareholders who have 

ownership in the range of 0-5 percent are likely to have positive influence on 

profitability. The existence of large shareholders is beneficial but at the same time, there 

are costs associated with it, because sometimes-high ownership leads to entrenchment 

effect, which will eventually harm the company’s performance. On the other hand, 

spreading ownership can also bring the problems due to difficulty in decision-making 

process.  

Takeovers 

The literature revealed the managers resist takeover because they want to safeguard 

their own personal interests, so shareholders may end up losing because they miss the 

opportunity of take over and the added value (new strategy, new management, adopt 

changes for better performance) that they could take advantage of. 

 Takeover is seen as tool to rapidly concentrate ownership of a company. However, 

takeover might be expensive, because it might increase agency cost. Therefore, in order 

to be an effective takeover; there is certain conditions that CG must meet, including: 

liquid capital market and venerable to political pressures. 

Voluntary Disclosure 

Voluntary disclosure is one of the most significant solutions to mitigate the extent of 

agency problem, due to disclosing additional information, which guarantees more 

transparency and eliminate information asymmetry problem. Saidin et al. (2024). point 

out that VD aims to provide investors with clear picture about company’s current 

performance and its plans, in this way VD contributes in connecting all stakeholders 

together. Hence, Koduah (2020). mentioned that VD helps in enhancing company’s 

reputation and attracting new opportunities (Koduah, 2020).. In addition, as mentioned 

in capital theory it enables firms to attract fund at lower costs (Koduah, 2020). 

Corporate Governance 

Corporate governance is a system that ensures the flow and access of information for all 

parties by aligning management’s interest with other shareholders since CG has 

significant role in mitigating agency problem and information asymmetry problem 

(Hidalgo et al., 2011). 



25 

2.9 Literature Review and Development of Hypothesis 

CG is a tool and solution to achieve transparency and accountability to all stakeholders, 

hgclear and accurate information. When there is no sufficient level of transparency in a 

country, the higher the cost of capital and lowers the chances for country to attract new 

business. The literature at the beginning has focused to achieve transparency and 

corporate governance by investing in the internal control of the company such as 

focusing on the efficiency of audit committees and characteristics of board of directors. 

However, the level of transparency and corporate governance differs from country to 

country  (Brennan & Solomon, 2008). 

Corporate Governance and Voluntary Disclosure 

According toBrennan & Solomon (2008), there is a positive relationship between 

independent directors and financial performance, therefore managerial turnover, the 

independence of board, CEO duality are considered a crude proxy for measuring board 

effectiveness. Additionally, Brennan & Solomon (2008) highlights that audit committee 

and internal audit plays a significance role in achieving transparency, because it works 

on improving financial reporting quality. 

A study conducted by Abdelhaq (2019) on 45 Palestinian firms investigated the impact 

of board compositions, board committees and firm characteristics on VD, its findings 

were that firms with lower board size encourage to disclose more voluntary information, 

because smaller board size will be easily managed according to. It also found that there 

is no relationship between the portion of non-executive directors and level of VD; they 

claim that in emerging countries like Palestine, those board members are not truly 

independent that may have family or friend relationship with insider directors.  

Moreover, the findings suggest that CEO duality has negative relationship with level of 

voluntary disclosure in Palestine. It also found a positive relationship between board 

size and the level of VD, this is because larger board has a wider variety of experience 

and knowledge which encourages disclosure practices accountability and transparency, 

on the other hand, the study suggest that board independence has no influence on the 

level of VD.  

Roodposhti & Chashmi (2011) found a positive relationship between stock market 

return when board has more outside directors, because outside directors are more 



26 

objective. They suggest that firm who has manipulating earnings; usually have CEO, 

who also serves as board chairperson. Therefore, (Jensen & Meckling, 2019) state that 

for more effective BOD, it is important to separate CEO and chairperson positions. For 

board size, some studies suggest that smaller board is more effective because it 

enhances board control, consistent with this finding..Cohen et al. (2002) found. that the 

likelihood of increasing fraud in financial statements, and arises as BOD size increases. 

However, other studies suggest that larger size of board reflects more efficiency and 

experience, which is more effective in protecting the company from failure (Chaganti et 

al., 1985). 

Ramadhan (2014) conducted a study on Bahrin market conducted discussing board 

composition, AC, ownership structure and voluntary disclosure. It consists of all listed 

companies in Bahrain 48 companies. It found that there was no significant relationship 

between voluntary disclosure and the proportion of independent directors. Also, it 

interpreted the reason behind this result is that independent directors might not involve 

in decision making process and business. In addition, results show that there is no 

relationship between CEO duality and voluntary disclosure. 

Al-Janadi et al. (2013) examined how internal and external corporate governance 

mechanisms affect voluntary disclosure (VD) in Saudi Arabia. They found that 

independent directors positively influence VD, while the presence of family members 

do not have a negative impact because of their limited presence on boards. Moreover, 

the study found that board size positively affects VD, but there is a significant negative 

relationship between the separation of the CEO and chairman roles and VD. The authors 

suggested that combining these roles develope company's ability to shape its strategies 

and objectives, this align with stewardship theory, which emphasizes empowering 

managers and aligning their interests with those of shareholders.  

These findings suggest that CG structures influence VD differently across regions. 

Given these insights, we propose the following hypothesis: 

H1: Corporate governance has a positive relationship with the extent of voluntary 

disclosure. 

  



27 

Audit committee efficiency and voluntary disclosure  

Audit committee has a critical role for many reasons. It guarantees that international 

accounting standards have been applied, moreover keeps the firm in good image and 

reputation, that it creates trust and credibility in potential and existing investors. Audit 

committee is a subpart from the board of director. Exaggeration of profits does not 

happen in companies that have audit committees. Devi & Seewoo (2011) found that the 

existence of audit committee is a critical issue must be taken into consideration, because 

it will affect firm’s performance and the degree of voluntary disclosure especially in 

developed countries.  

The audit committee usually consists of the company's board of directors, whose main 

task is to protect the interests of shareholders and oversee the reporting process. It 

consists of a group of non-executive managers who are independent, and they have 

financial and accounting skills. Previous studies agreed that the effectiveness of the 

audit committee depends mainly on the characteristics of the members of the committee 

(Ernawati & Aryani, 2019). 

Independence is one of the most important elements that increase the efficiency and 

effectiveness of the audit committee. Independence means the independence of the audit 

committee from the executive management of the firm (Ernawati & Aryani, 2019). This 

is to appear not biased towards the views of the executive management and to increase 

the quality of the financial reports, and to ensure that the managers work for the benefit 

of the shareholders and protect (Ho & Wong, 2001).More non-executive auditors will 

decline fraud and wrong and misinformation, which leads to reduce agency problem and 

increase voluntary disclosure (Ho & Wong, 2001). 

One of the basic conditions that must be met in an audit committee is the availability of 

accounting expertise and qualifications for the members of the audit committee, which 

enables them to understand many different accounting issues and treat them properly, in 

accordance with accounting standards ( Musallam, 2020).The presence of individuals 

with accounting skills reduces the risks related to the preparation of financial reports ( 

Musallam, 2020).  

One of the basic conditions that must be met in an audit committee is the availability of 

accounting expertise and qualifications for the members of the audit committee, which 



28 

enables them to understand many different accounting issues and treat them properly, in 

accordance with accounting standards ( Musallam, 2020).The presence of individuals 

with accounting skills reduces the risks related to the preparation of financial reports 

( Musallam, 2020). Increasing the size of the audit committee increases its effectiveness 

because this leads to a diversity of experiences for its members and a better ability to 

perform the tasks assigned to the audit committee, and increases its ability and accuracy 

in supervising the financial reporting process (Altawalbeh, 2020). 

However, other studies in the literature examined that impact of AC attributes on 

voluntary disclosure, for example, Talpur et al. (2018) studied 146 Malaysian 

companies and found that effectiveness of AC increase the levels of voluntary 

disclosure. Although, another study conducted by Altawalbeh (2020). suggested that 

four AC attributes (size, experience, independence, and meeting frequency) have no 

influence on voluntary disclosure 

Samaha and Dahawy (2011) analyzed the corporate governance structure and voluntary 

disclosure (VD) in Egypt, emphasizing the role of the audit committee (AC) in 

enhancing the flow of information and communication between shareholders and 

management. In a related study, Samaha et al. (2012) found that the presence of an AC 

positively influences VD levels, identifying it as the strongest predictor and driver of 

VD. 

Ramadhan (2014) suggests that there is no relationship between AC independence and 

voluntary disclosure, the study consider the reason behind this that the code of CG in 

Bahrain recommends the existence of AC, who believes that its main responsibilities is 

to focus on enhancing the communication between BOD and shareholders, it extends 

beyond putting pressure on companies to increase voluntary disclosure. Also, 

Altawalbeh (2020) investigated the impact of AC attributes on VD in Jordan from 2013 

to 2016 on 72 companies. 

It is found out that there is a positive relationship between AC independence and 

meetings frequency on the extent of VD, which means that independent AC will 

enhance transparency and increase VD, and increasing the frequency of AC meetings 

will increase AC effectiveness in its monitoring function. AC size and experience has 



29 

no impact on VD. However, Pearson (2009), found that firms that tend to disclose more, 

have larger independent AC. 

The literature presents mixed findings regarding the potential influence of the efficiency 

of AC on the extent of VD, which varies from country to country according to their 

rules. However, in this study, we emphasize the role and influence that AC has on the 

extent of VD.  

H2: Audit committee efficiency has positive relationship on the extent of voluntary 

disclosure.  

The Moderating Role of Corporate Governance 

In Canada, ACs requirements exist in acts on incorporations. Which states that at least 

three members of ACs should be independent (outside directors) (DeZoort & Salterio, 

2001). They suggest that firms with outside directors, who are independent and 

objective, tend to voluntarily increase AC strength and effectiveness to reduce 

information asymmetry problem, also the larger the size of the board the more ability 

for outside directors to add more outside member to AC.  

For increasing AC effectiveness in oversight function, AC members should possess 

accounting and financial experience and knowledge (DeZoort & Salterio, 2001). Al-

Baidhani (2014) found out in their study that when BOD have more outsider director 

and larger size is to have ACs with more than the mandated minimum required majority 

of outside directors on the AC which increases AC effectiveness. This study shows us 

that the effectiveness of AC is tied with the existence and the effectiveness of BOD 

moderator  

Drogalas et al. (2016) examined the relationship between CG, internal audit and AC. 

CG is important tool because it contributes in economic growth and maintain stable 

environment, firms that don’t adopt CG suffer from higher agency cost, more conflict of 

interest between managers and shareholders. They found that a strong relationship 

between AC and CG for example. Bhasin & Shaikh, (2012). has mentioned the 

importance of AC as tool between auditors and corporate management. CG has an 

effective role in increasing the quality of financial reporting. 



30 

Hence Drogalas et al. (2016) found a positive relationship between AC and CG, because 

AC plays and important role in facilitation the communication between board of 

directors and other parties. 

H3: Corporate governance Moderate the relationship between audit committee and the 

extent of voluntary disclosure.  

Other Determinants of VD  

Many control variables should be taken into consideration while studying the effect of 

AC and CG on voluntary disclosure like profitability, firm’s size, growth option, and 

leverage.  

Profitability  

The company’s desire to disclose increase when it has high profitability levels, for 

several aspects and reasons, and one of these reasons is to encourage current and 

potential investors to invest and increase investment in the company. The most 

important reason is to convince shareholders by disclosing profits that the management 

is actually working for their interests(Samaha & Dahawy, 2011). 

Firm’s size 

Abdelhaq et al, (2019) found that there is a positive relationship between company size 

and level of VD. They conducted a study on Italian companies, and the results of his 

study shown that firm size has significant positive relationship with extent of VD. Also, 

Akhtaruddin & Haron (2010) found out that firm size has impact on the extent of VD. 

Moreover, they suggested that disclosing information would decrease agency cost 

between company and providers of fund. Hence, they point out those larger firms are 

smart enough to realize the benefits of VD, for example: greater marketability and 

easier access to fund.  

Growth Option 

Market to book value is an accounting measure uses as an indicator for firm’s potential 

growth, this ratio helps in evaluating firm’s growth and reflect investor’s expectations 

about the future. Mendes-Da-Silva & De Lira Alves (2004) in their study measured 

firm’s value using Tobin Q ratio, calculated through taking into consideration the value 



31 

of the company in stock market, compared to its book value in balance sheet by 

deducting value of liabilities from the value of assets. If the Tobin’s Q greater than 1 

this results in high signal for firm’s future growth, which gives the firms greater 

incentive to strategically disclose more information to build trust and attract more 

investors.  

The literature review has mixed results regard the relationship between growth option 

and voluntary disclosure. Studies argue that its negative relationship because disclosing 

more information is first costless, second competitors might take advantage of knowing 

firm’s plans and investors may misunderstand or suspect the intentions of company to 

provide more information to the market.  

However, increasing disclosure helps to increase cash flow to managers by lower the 

cost of monitoring, lower agency cost which, increases firms’ value others suggest to 

trade-off between the cost and benefits of voluntary disclosure on growth option to 

decide whether to disclose or not (Hassan & Hijazi, 2015). In this study, it is suggested 

that there is a positive relationship between voluntary disclosure and growth option. It 

contributes in creating positive image and trust, protect the firm from litigation cost, 

which increases investor’s loyalty and increases its value in the market.  

Degree of Leverage 

The degree of leverage and the extent of voluntary disclosure has mixed results. Some 

believe that there is a positive relationship between leverage and voluntary disclosure 

(Alturki, 2014). Other suggest that it’s not related like (Wang et al., 2011). However, it 

is believed that negative relationship, exist between leverage and voluntary disclosure. 

Higher levels of leverage mean higher agency problem, which leads to higher agency 

cost. Therefore, leveraged firms tend to disclose more in order to guarantee the comfort 

and trust of creditors (Alturki, 2014). 

  



32 

Chapter Three 

Research Methodology 

3.1 Introduction  

In this section, we are identifying the methodology used in analysing data, clarifying 

how each variable was measured, it also reviews population and sample, and data 

collection method. The definition for all variables. This section aims to provide high 

transparency and detailed techniques employed in the research process.  

3.2 Research design 

The study uses a correlation research design. This approach allows for objective 

measurement of variables through numerical data, which ensures accuracy in the 

analysis. The correlation method is suitable for identifying patterns are relationships 

among variables, making it most suitable choice for this study.  

3.3 Population and Sample  

The population for this study consists of all companies listed on the Palestine exchange 

(PEX) during the period 2009-2021, except banks, total of 36 companies as presented in 

table (3-1): 

Table (3.1) 

Summary of the study sample  

Industry Palestine listed companies year 

Manufacturing 14 2009-2021 

Service 12 2009-2021 

Insurance companies 10 2009-2021 

Total companies 36 
  

3.4 Data collection  

To test the hypothesis of the study, time series data were collected from companies’ 

annual reports published on the Palestine Exchange, covering the period from 2009 to 

2021. Data on Firm-specific factor were obtained from financial reports, while 

information the on effectiveness of the Audit Committee (AC), Corporate Governance 

(CG) and Voluntary Disclosure (VD) were gathered from annual report disclosures 



33 

using a checklist. This dataset includes a total of 473 observations from 2009 to 2021. 

For reference, the detailed checklists used in the study can be found in Appendices A, 

B, and C  

3.5 Variables Measurement  

3.5.1 The Dependent Variable: Voluntary Disclosure Index  

Voluntary disclosure is the dependent variable in this study. VD is essentially based on 

the information that firms are likely to disclose in its annual financial reports to the 

shareholders. To measure to what extent firms, disclose and provide information in its 

annual report to shareholders an index designed to help us measure voluntary 

disclosure, which is voluntary disclosure index (VDI) 

A score sheet is used as shown in appendix A to contribute in measuring voluntary 

disclosure. This index relies on seven categories that should be taken into consideration, 

including general company information, corporate strategy, financial performance, 

employee information, segmental information, corporate governance information, and 

capital market data. This index was used by Jallad (2020) 

It is assumed that indicators mentioned in the index are un-weighted, as Soliman (2013) 

argue that each indicator in category is equally Therefore, the suitable way to measure 

the disclosure level of each company is calculated by dichotomous procedure, which 

assigns one if the firm discloses an item and zero if the firm does not Soliman (2013). 

suggest that index will be measured as the ratio of actual score divided by the maximum 

score.  

3.5.2 Independent Variables:  

In this study, independent variables encompass Corporate Governance Index, which is 

represented by characteristics and governance attributes and board of directors, and the 

efficiency of AC.  

AC Efficiency 

This variable is represented by audit committee index. It was assessed through a 

checklist compromise of various points of Jallad (2020) that the audit committee index 

is represented by four points: 1. Company has an AC 2. Chairperson of committee is 



34 

non-executive director 3. All members of committee are non-executive director and 4. 

Chairperson of the board is not the chairman or member of the AC. Assigning a value of 

1 if the firm disclose information and 0 if the firm does not disclose it. The index is then 

calculated by summing the scores and by the total four points. 

CG Index 

The Corporate governance index used in this study is based on seven criteria outlined 

by Jallad (2020), which are: 1.chairperson and CEO are two different individuals 2. 

Chairperson is non-executive director 3. The composition of the board of directors has 

two independent directors 4. Board has governance committee 5. All directors attend 

75% of board meetings or had a valid execuse 6. Company has remuneration committee 

7. Board size is greater than 5 but less than 11.  

Each criteria is assigned a value of one if the firm disclose information and zero if the 

firm does not disclose it. The index is then calculated by summing the scores and by the 

total seven points. Refer to Appendix B&C.  

Corporate governance moderating variable 

To evaluate the moderating role of corporate governance (CG) on the relationship 

between the Audit committee (AC) and Voluntary disclosure (VD), and interaction term 

was developed. This term, designated as (AC x CG), by multiplying the independent 

variable (AC) with the moderator (CG). This approach is utilized in moderation 

anaylsis, as seen in studies by Bepari and Mollik(2015).  

3.5.3 Control Variables  

The study includes four control variables. The profitability of firm, expressed through 

return on assets which is calculated by dividing net income by total assets as Cheng & 

Courtenay (2006) used in their study “ board composition, regulatory regime and VD” 

This metric serves as indicator of how effectively a firm utilize its resources and assets 

to generate profits (Amara & Mabrouki, 2019)Firm size is calculated by the logarithm 

of total assets. Leverage is calculated by the ratio of total debt to total assets which 

indicates how much money is borrowed that used to increase potential gains or losses in 

firm.  



35 

3.6 The Regression Model  

The study aims to empirically test impact of AC, CG and the interaction term between 

AC and CG on the extent of VD in the annual reports of Palestinian non-financial 

companies listed in on Palestine exchange between 2009 and 2021, the following 

multiple regressions were developed:  

• Model 1: VD = C + BAC + BSIZE + B LEV + B ROA + BGTH + e  

• Model 2: VD = C +B CG + BSIZE + B LEV + B ROA + B GTH +e  

• Model 3: VD= C+BAC+BCG+ BAC*CG + BSIZE + B LEV + B ROA + B GTH +e  

Where VD is the dependent variable  

AC: The variable that represents audit committee characteristics  

CG: The variable that represents corporate governance  

AC*CG: The interaction term of corporate governance and audit committee  

SIZE: Represents firm’s size  

LEV: Represents financial leverage  

ROA: Represents profitability  

GTH: Growth option  

C: constant  

E: error term 

3.7 Estimation Methods  

To empirically test the impact of AC, CG characteristics on the extent of VD in 

Palestine, various estimation methods were employed.  

Starting with descriptive statistics, like mean, median, standard deviation, and range are 

used to summarize the central tendency, dispersion, and distribution of variables under 

investigation. This helps in providing a clear understanding of the characterises of the 

data and identifying any outlier or patterns.  

The correlation matrix is constructed to examine the strength and direction of the 

relationship between variables. It allows identifying and potential for multicollinearity 

issues and provides insights into which variables may be significantly correlated to each 

other. It allows researchers to choose subset of variables that are moderately or weakly 



36 

related to ensure that regression focuses on most relevant and independent predictors. In 

short, it helps ensure that regression analysis produces accurate and meaningful results.  

In my study, the researcher will apply the least square method in regression analysis. the 

researcher chose this method because it effectively estimates the coefficients of the 

independent variables by minimizing the sum of the squared differences between 

observed and predicted values of the dependent variable. It provides unbiased and 

efficient estimates of the coefficients, enabling the interpretation of magnitude and 

significance of the relationships between variables.  

Additionally, the Hausman test is employed to assess the consistency of the estimated 

coefficients in the presence of endogeneity or correlation between independent variables 

and error term. This test helps determine whether ordinary least square method 

estimates are consistent or whether alternative estimation methods, such as instrumental 

variables or fixed effects, should be considered.  

The combination of descriptive statistics, correlation analysis, least square estimations, 

and the Hausman test allows for comprehensive examination of the relationships 

between AC efficiency, CG and VD in Palestinian non- financial companies.  

  



37 

Chapter Four 

Results and Discussion 

4.1 Descriptive Statistics  

Descriptive analysis plays an important role in summarizing data and by presenting key 

characteristics of data including mean median and mode and measure of dispersion like 

standard deviation and variance.  

Table (4.1) 

Descriptive statistics 

Variable Mean Median Maximum Minimum Std. Dev. Observations 

VD 0.385 0.371 1.171 0.000 0.223 473 

AC 0.429 0.250 1.000 0.000 0.455 473 

CG 0.581 0.571 1.000 0.000 0.238 473 

FSIZE 17.186 17.202 20.744 13.618 1.555 473 

FLEV 0.381 0.362 1.057 0.000 0.233 473 

ROA 0.034 0.050 0.557 -2.632 0.227 473 

GTH 0.974 0.928 2.471 0.065 0.372 473 
 

The VD has mean of 0.385, which means that the average percentage of VD in Palestine 

is 0.385 which is relatively low and inconsistent with previous findings. For example, 

Almusli, et al (2014) found that the mean of VD is 46%, because she studied only firm 

determinants and its influence on VD. While Ramadhan (2014) found that VD is 50%, 

and in Jordan, Altawalbeh (2020) found that the mean of VD is 50%.  

Ismail & El‐Shaib (2012) investigated organizational determinants of VD in Egypt and 

found that the mean of VD is 40%, so it is noticed that average of VD is relatively close 

for developing countries. For AC, it has the mean of 42.9%compared to the study 

conducted by Agyei-Mensah, (2019) to examine the impact of AC effectiveness on VD, 

the mean of AC 47.3% which is close to our findings.  

Nsour & Al-Rjoub (2022) conducted a study using the following points to measure CG 

index: board structure, board procedure, disclosure, ownership and minority 

shareholders rights on 191 companies including bank sector, CG has a mean of 67.8%, 



38 

which is higher than Palestinian firms are because Jordan has more developed CG 

regulations compared to Palestine.  

Moreover, the stock market in Jordan has more diversified stocks and Palestine and 

Jordan have different political and economic environments. Firm size has a mean of 

17.18 similar to Jallad, (2020) study which has a mean of 17.14 and Abdelhaq et al 

(2023) in their study having a mean of 17.62. For leverage has mean of 38%, which 

means that Palestinian firms rely on 38% of financing its operations, and the rest on 

equity. For ROA, it has the mean of.036, which is very low. In addition, growth option 

in Palestine is 0.974, which is low because market value of Palestinian firms is below 

their book value.  

4.2 Correlation Matrix  

Correlation analysis conducted to examine the bivariate association between variables, 

if it has a value of -1 this means that there is perfectly negative linear relationship 

between two variables, and value of 1 means perfectly positive relationship. Correlation 

matrix investigates the associations between dependent and independent variables, and 

the independent variables together: 

Table (4.2) 

Correlation Analysis 

Correlation VD AC CG SIZE LEV ROA GTH 

VD 1.000       

AC 0.228 1.000      

CG 0.505 0.354 1.000     

FSIZE 0.141 0.356 -0.057 1.000    

FLEV 0.112 0.235 0.036 0.254 1.000   

ROA 0.031 -0.016 -0.001 0.181 -0.173 1.000  

GTH 0.313 0.140 0.238 -0.053 0.122 -0.033 1.000 
 

In this correlation matrix, I checked the relationships between the variables to asses the 

risk of multicollinearity, which occurs when explanatory variables are highly correlated 

with each other. If correlations exceed 0.7, it could undermine the stability and 

reliability of the regression results. However, in my analysis, none of the correlations 



39 

reached this level. The highest correlation was 0.356 between FSIZE and AC, and 0.354 

between CG and AC, both of which are quite low. 

This suggest that the variables are mostly independent of each other, minimizing the 

risk of multicollinearity affecting the results. As a results the analysis remain reliable, 

and the model’s robustness is well supported.  

4.3 Regression Analysis  

This study, a statistical method was employed to investigate the relationships between 

dependent variable and the independent variables. Specifically, multiple regression 

analysis was conducted using three models to test three hypothesis. The hypothesis 

examined the relationship between AC and VD, GG and VD, and the interaction term of 

CG and AC on VD, alongside control variables (firm size, leverage, growth option and 

return on assets), using panel OLS fixed effect method. 

Fixed effect model was selected based on Hausman test, it was performed to check 

whether fixed or random effects panel regression was more appropriate to estimate the 

regression. The Hausman test results shows that P value equals 0.0065, which is less 

than 0.05 so we reject the null hypothesis and confirming that fixed effect model is 

more suitable for the analysis. To address potential issues of auto correlation and 

heteroscedasticity, robust standard errors using the PCSE method were employed, 

ensuring more reliable results. 

  



40 

Table (4.3) 

The impact of AC effectiveness, firm specific factors on the extent of VD 

Dependent Variable: VD_INDEX 
    

Variable Coefficient 
Std. 

Error 
t-

Statistic 
Prob. 

AC_INDEX 0.094 0.016 5.786 0.000 

FSIZE 0.097 0.015 6.341 0.000 

FLEV -0.055 0.055 -0.998 0.319 

ROE -0.033 0.023 -1.413 0.159 

MB 0.148 0.027 5.458 0.000 

C -1.438 0.246 -5.842 0.000 

R-squared 0.805 
   

Adjusted R-squared 0.784 
   

F-statistic 39.090 
   

Prob(F-statistic) 0.000 
   

Durbin-Watson stat 0.669 
   

Total panel (unbalanced) observations: 473 

Cross-section weights (PCSE) standard errors & covariance (d.f. corrected) 

Cross-section fixed (dummy variables) 
 

In model 1, the regression indicates that audit committee index (AC_index) has a 

positive and significant effect on voluntary disclosure, with a coefficient of 0.094 and a 

p-value of 0.000, showing that audit committee efficiency is associated with a 0.094 

increase in voluntary disclosure, holding other variables constant. Which supports H2 

that indicates: Audit committee efficiency has positive relationship on the extent of 

voluntary disclosure.. The result aligns with previous study by (Abdelhaq, 2019)and 

Sweiti et al 2013 who found that the existence of AC has positive impact on the extent 

of VD in Egypt and Palestine, respectively.  

Firm size (FSIZE), shows a positive significant relationship with a coefficient of 0.097, 

which means that larger firms are more motivated to disclose information voluntarily.  

However, financial leverage(FLEV) and return on equity (ROE) don’t have significant 

effect, as their p-values are 0.319 and 0.159 respectively. The market to book ratio 

(MB) has a strong positive and significant relationship with the extent of voluntary 



41 

disclosure, with a coefficient of 0.148, suggesting that firms with greater growth 

opportunity are likely to disclose more information. 

Table (4.4)  

The impact of CG and firm specific factors on the extent of VD 

Dependent Variable: VD_INDEX 
    

Variable Coefficient 
Std. 

Error 
t-

Statistic 
Prob. 

CG_INDEX 0.279 0.03