Impact of Financial Performance and Corporate Governance on ESG Disclosure: Evidence from Saudi Arabia

Abstract

This study investigates the impact of financial performance and corporate governance mechanisms on environmental, social, and governance (ESG) disclosure in Saudi Arabia, a country undergoing significant institutional transformation under Saudi Vision 2030 and Tadawul’s 2021 ESG reporting reforms. While ESG research has gained traction globally, studies in emerging economies, particularly in the Gulf region, remain limited. This paper addresses this gap by examining whether profitability, measured by return on assets (ROA), and board size influence ESG disclosure. This study analyzes 260 firm-year observations of Saudi non-financial listed companies from 2009 to 2023. Using multiple regression analysis, including ordinary least squares (OLS), fixed effects (FE), and generalized method of moments (GMM), the analysis controls for endogeneity and ensures robust results. Findings indicate that board size had a negative and statistically significant relationship with ESG disclosure. The robustness tests confirm the inverse relationship between board size and ESG. ROA showed no correlation with ESG disclosure in the main findings; however, robustness tests revealed a negative and significant correlation. This study is the first to explore these impacts post Tadawul’s 2021 ESG guidelines. It also offers novel insights into ESG practices aligned with Saudi Vision 2030. This study contributes to the literature by situating ESG disclosure within the Saudi context, highlighting the unique role of governance dynamics in shaping sustainability practices in emerging markets. The results carry practical implications for policymakers, regulators, and corporate boards by recommending stronger governance frameworks, such as board-level ESG committees, executive compensation linked to ESG, and sector-specific disclosure standards.

1. Introduction

The growing importance of ESG—environmental (ENV), social (SOC), and governance (GOV)—disclosure reflects a worldwide transition toward sustainable and responsible business practices. Companies are increasingly integrating ESG factors into their strategies to meet the demands of investors, consumers, and regulators. ESG initiatives aim to mitigate environmental damage, promote social responsibility, and enhance governance frameworks, fostering resilience and long-term success [1,2]. Investors favor high ESG ratings for their association with reduced risks and stable returns [3]. This trend extends beyond developed markets, influencing emerging economies like Saudi Arabia, where corporate practices are increasingly aligned with sustainable development goals [4,5].

Saudi Arabia has taken key steps to promote ESG within its economy, driven by the Saudi Vision 2030 initiative, which emphasizes sustainable development and economic diversification [6]. For example, in 2018, the Saudi stock exchange (Tadawul) joined the United Nations Sustainable Stock Exchanges Initiative as part of its commitment to advancing ESG awareness and encouraging sustainable investment. Moreover, Saudi Arabia’s corporate governance framework, led by the Capital Market Authority, mandates accountability and transparency among listed companies through the Saudi Code of Corporate Governance. In 2021, Tadawul introduced ESG disclosure guidelines to enhance reporting standardization [7]. As a result, by promoting transparency and encouraging ESG reporting, Tadawul supports both Saudi Vision 2030 and the United Nations Sustainable Development Goals, encouraging Saudi companies to integrate ESG factors into their operations while contributing to regional and global sustainability objectives. However, further investigation is needed to understand the specific factors that influence ESG practices in Saudi Arabia’s non-financial sector, particularly concerning financial performance indicators and corporate governance structures [5,8].

In contrast to other contexts, unlike China, where ESG reporting has developed rapidly through strong state intervention and well-established disclosure frameworks [9], Saudi Arabia represents a distinctive context in which ESG reforms are more recent and closely tied to Saudi Vision 2030 and Tadawul’s 2021 disclosure guidelines [10]. This distinction underscores the research value of examining Saudi Arabia, as it provides insights into how ESG practices evolve in emerging economies with unique institutional, cultural, and regulatory dynamics.

Building on this unique context, financial performance and corporate governance structures become particularly significant in shaping ESG disclosure practices in Saudi Arabia, as these firm-level factors interact with the nation’s reform-driven environment to promote sustainable reporting [11,12]. Financial performance, commonly measured by Return on Assets (ROA), is defined as net income divided by total assets [5]. ROA reflects operational efficiency and a firm’s capacity to support sustainability [4,13]. Consequently, this makes ROA an essential variable for assessing the financial drivers of ESG disclosure, particularly in emerging markets. In terms of corporate governance structure, the board size, measured as the total number of directors at year-end, reflects governance capacity and oversight capabilities [14]. It plays a pivotal role in influencing ESG disclosure [13]. Empirical studies by Treepongkaruna et al. [15] and Moussa and Elmarzouky [13] found that expanded boards correlate with higher ESG transparency. However, findings on these relationships remain inconclusive. Some studies show that larger boards enhance ESG transparency, while others argue they lead to inefficiencies and weaker accountability [1,15]. Given this context, in Saudi Arabia’s reform-driven environment—where Vision 2030 encourages modernization and Tadawul’s 2021 guidelines promote ESG reporting—these variables are particularly relevant.

Earlier Saudi-focused studies such as Bamahros et al. [16], Chebbi and Ammer [8], and Umar et al. [5] provide useful insights but also reveal important limitations. For instance, Bamahros et al. [16] emphasized royal family membership and audit committee appointments, but overlooked broader governance mechanisms and treating ESG disclosure as a single construct. In contrast, Chebbi and Ammer [8] analyzed only three board attributes (size, independence, gender diversity) using fixed-effects models, yet these methods may not adequately address endogeneity. Similarly, Umar et al. [5] included more governance variables but treated ROA and board size as control variables without strong theoretical justification. Moreover, all three studies relied on small pre-2021 datasets, excluding the period after Tadawul’s ESG guidelines, which standardized disclosure and significantly reshaped reporting practices. As a result, their findings lack generalizability to Saudi Arabia’s current ESG landscape.

This timing excludes data influenced by Tadawul’s 2021 ESG disclosure guidelines, which standardized reporting practices to improve investor assessments of sustainability initiatives [7]. Thus, the methodological limitations of these studies, including OLS and fixed effects constraints, restricted variable selection, and theoretical gap, highlight the need for a more robust approach and deeper investigation. Consequently, their findings lack generalizability to Saudi Arabia’s current ESG landscape is shaped by these reforms.

To address these shortcomings, this study addresses these gaps by offering a theory-driven, methodologically rigorous, and context-specific analysis of ESG disclosure in Saudi Arabia. It makes three distinct contributions. First, it places ROA and board size at the center of the analysis rather than treating them as peripheral controls, positioning them as key determinants of ESG disclosure. Second, it leverages a 15-year dataset (2009–2023), which spans pre-, during-, and post-COVID-19 periods. This captures the impact of Tadawul’s 2021 ESG reforms and provides a broader coverage than earlier studies. Third, it applies advanced econometric methods (ordinary least squares (OLS), fixed effects (FE), and generalized method of moments (GMM)) to address endogeneity, reverse causality, and omitted variable bias, thereby improving the reliability of the results. Together, these contributions provide robust evidence on how financial performance and governance structures interact to influence ESG disclosure within Saudi Arabia’s evolving institutional framework.

Beyond its theoretical contributions, the study also delivers practical value by proposing ESG strategies tailored to the Saudi context. These include policy recommendations such as standardizing ESG disclosures, mandating sector-specific reporting, and introducing third-party assurance mechanisms. For firms, the study highlights the role of ESG-linked executive incentives, board-level ESG committees, and internal training as tools to improve ESG performance. These implications aim to advance regulatory modernization and corporate practice in line with the Saudi Vision 2030. To guide this investigation, the study pursues the following objectives:

• To examine the impact of ROA on ESG disclosure in Saudi non-financial companies.
• To investigate the influence of board size on ESG disclosure in Saudi non-financial companies.

This paper is structured as follows: Section 2 presents the literature review, outlines the theoretical framework and hypothesis development. Section 3 elaborates on the research methodology. Section 4 presents the empirical results and discussion. Section 5 concludes this study, followed by a discussion of its limitations and directions for future research.

2. Literature Review

2.1. The Rise of ESG Disclosure and Its Importance in Emerging Markets

ESG disclosure has become important as stakeholders demand transparency on non-financial performance indicators [4,5,10,17,18]. To identify key trends and contributors, the author of this study conducted a bibliometric analysis of literature from 2015 to 2024. Using the R statistical software (version 4.4.2) and the “Bibliometrix” package (https://www.bibliometrix.org/home/), the analysis reviews published studies from Scopus and Web of Science to identify key countries contributing significantly to ESG research [19,20].

Figure 1 presents the top 10 countries contributing to ESG research. China leads with 845 articles, followed by the USA with 811 articles. The UK and India also stand out, with 395 and 387 articles, respectively, reflecting the strength of their academic institutions and research communities. This reflects Asia’s rising influence in ESG and corporate governance research, aligning with the growing focus on sustainability in emerging economies.

In contrast, ESG research in Saudi Arabia remains in its early stages [7]. However, recent initiatives such as Saudi Vision 2030 and Tadawul’s 2021 ESG disclosure guidelines are designed to align domestic practices with global benchmarks [21]. While developed markets findings are often not directly applicable to emerging economies due to differences in regulatory and cultural contexts [20,22,23,24], research in the Gulf Cooperation Council (GCC) and the Middle East and North Africa (MENA) regions provides crucial insights. For example, Arslan et al. [25] show that poor ESG performance reduces foreign ownership in 21 emerging economies, while Hichri and Alqatan [26] highlight the value relevance of integrated reporting. Hussain et al. [4] confirm that ESG disclosure has grown alongside improved performance in Saudi non-financial firms. Tawfik et al. [27] demonstrated that royal family ownership provides legitimacy and access to resources, while smaller boards strengthen monitoring effectiveness in the GCC context. Moreover, Al-Duais et al. [28] reveal that family ownership weakens the positive effect of CEO characteristics on corporate social responsibility reporting.

Despite these advances, the influence of specific firm-level factors like profitability and board structure remains underexplored in the Saudi post-2021 reform context. This gap motivates the current study, which tests whether financial performance (ROA) and governance structures (board size) influence ESG disclosure.

2.2. Relationship Between Financial Performance, Corporate Governance, and ESG Disclosure

Research on the relationship between ROA and ESG practices reveals mixed results across different contexts [8,10]. Several studies report a positive relationship in emerging economies. For instance, Chebbi and Ammer [8] argue that financially successful firms have greater resource capacity to invest in ESG initiatives, suggesting that profitability as resource enabler of sustainability. Similarly, Hussain et al. [4] find that high-ROA firms in emerging markets leverage ESG disclosure to build stakeholder trust, while Sharma et al. [17] document a positive link between ESG and firm value in the GCC firms. Zhou et al. [29] provide comparable evidence from China, where ROA mediates ESG-value creation, especially in state-owned firms. These findings suggest that profitability can provide the financial and institutional legitimacy needed to sustain ESG activities, although the influence may vary by context.

In contrast, other studies highlight profitability as a constraint on ESG engagement. Farooq [30] finds that ESG disclosure reduces firm performance in Indian firms under low information asymmetry, while Saygili et al. [31] show that larger firms in Turkey experience weaker ROA–ESG links due to institutional gaps. El Khoury et al. [10] similarly identify a negative profitability–ESG association in the MENA banking sector. Alqatan and Hichri [23] find a negative corporate social responsibility impacts earnings management, with accounting conservatism mediating in Finland. Within Saudi Arabia, Al-Duais et al. [28] reveal that family ownership in Saudi Arabia reduces managerial incentives to disclose ESG, limiting the ROA–ESG relationship.

These findings critique the assumption of a harmonious ROA-ESG relationship, highlighting contextual barriers such as sectoral focus, market maturity, and institutional support. A clear tension emerges: does profitability enable ESG disclosure by providing needed resources and legitimacy, or does it reduce the incentive to disclose due to short-term performance pressures? This question is particularly relevant for Saudi Arabia, where family firm dominance and concentrated ownership intersect with new regulatory reforms. Accordingly, while stakeholder and legitimacy theories predict a positive ROA–ESG link, agency theory suggests that managers may deprioritize ESG if it is perceived as costly or misaligned with shareholder interests. This tension underscores the importance of re-examining the profitability–ESG relationship in the Saudi context, where institutional change is still underway.

Research on board size and ESG practices also provides mixed results [16,32]. On the positive side, larger boards are often linked to enhanced ESG performance. Birindelli et al. [32] find that gender-balanced boards and corporate social responsibility committees significantly improve ESG outcomes in developed countries. Is Saudi Arabia, Alsartawi [33] finds that gender-diverse boards positively influence sustainability reporting, and Buallay and Al-Ajmi [34] show that female representation on boards enhances disclosure quality in GCC banks. Treepongkaruna et al. [15] also argue that larger boards improve ESG transparency by incorporating varied perspectives, aligning corporate actions with stakeholder expectations. Bamahros et al. [16] show that larger boards, particularly those with unique features like royal family members and external audit committee members, significantly boost ESG disclosure, offering a governance-driven pathway to transparency.

However, larger boards can also create inefficiencies. Birindelli et al. [32] note that independent directors—often more prevalent in larger boards—sometimes weaken ESG outcomes in developed contexts, suggesting that expansion is not always beneficial. Furthermore, Umar et al. [5] find that board chairman independence negatively affects ESG disclosure, while audit committee size positively influences it in Saudi Arabia. Tawfik et al. [27] similarly show that smaller boards are more effective monitors, with royal family ownership provides additional legitimacy and external resources in the GCC context. Moreover, Al-Janadi et al. [35] and Mertzanis et al. [36] demonstrate that ownership concentration and family dominance often restrict board diversity in the GCC, thereby weakening governance and limiting ESG disclosure. These findings suggest that while larger boards may bring diversity and capacity for oversight, their effectiveness depends on cultural and institutional conditions. In Saudi Arabia, hierarchical board culture, concentrated ownership, and limited independence may offset the potential benefits of expansion, leading to a negative board size–ESG relationship.

This mixed evidence highlights a theoretical tension: stakeholder theory favors larger boards for inclusivity, while agency theory warns of inefficiency, and legitimacy theory questions whether size alone improves societal approval. This theoretical tension underscores the need to test whether board expansion enhances or constrains ESG disclosure in the Saudi context. The following sections will delve deeper into the theoretical underpinnings that inform this study, providing a framework for the development of hypotheses regarding the influence of ROA and board size on ESG disclosure.

2.3. Theoretical Framework and Research Hypotheses Development

In line with the literature on ESG disclosure, this study applies three theoretical perspectives: stakeholder theory, agency theory, and legitimacy theory. These frameworks explain how financial performance (ROA) and corporate governance (board size) shape ESG disclosure in the Saudi non-financial sector [15,16]. They capture both economic divers and institutional factors shaping ESG practices.

Stakeholder theory suggests that firms disclose ESG information to address the diverse expectations of investors, regulators, and society, thereby strengthening trust and long-term relationships [37]. Agency theory highlights how governance mechanisms (e.g., board structure) reduce or exacerbate conflicts of interest between managers and shareholders, influencing disclosure quality [38]. Legitimacy theory emphasizes how organizations align their practices with societal expectations to secure acceptance and legitimacy, which is especially relevant in the Saudi Vision 2030 context [39].

By integrating these three perspectives, the study provides a complementary lens through which the hypothesized relationships between ROA, board size, and ESG disclosure can be examined. However, the Saudi setting may explain why empirical results diverge from theoretical expectations. Stakeholder and legitimacy theories expect a positive link between profitability and ESG disclosure, yet firms may prioritize short-term financial stability and compliance over voluntary ESG investments. Limited societal pressure, concentrated ownership, and the dominance of family-owned firms reduce the incentive to use ESG reporting as a legitimacy tool. This institutional environment helps explain why ROA may not significantly drive ESG disclosure, despite theoretical expectations.

2.3.1. ROA and ESG Disclosure

From a stakeholder theory perspective, firms with higher ROA are better positioned to allocate resources toward sustainability initiatives, thereby increasing ESG disclosure to satisfy stakeholder expectations [37]. Agency theory suggests that profitability encourages managers to disclose ESG information as a signal of accountability to shareholders, thereby reducing information asymmetry [38]. According to legitimacy theory, profitable firms report more ESG activities to justify their societal role, particularly in Saudi Arabia, where Saudi Vision 2030 heightens public expectations for sustainability [39]. However, as highlighted in the literature review, contextual factors such as concentrated ownership, family firm dominance, and weak external monitoring may weaken this positive link in the Saudi market, explaining the mixed empirical evidence. Considering mixed empirical evidence and theoretical foundations, this study hypothesizes the following:

H1: 

ROA is positively associated with ESG disclosure.

2.3.2. Board Size and ESG Disclosure

While stakeholder and legitimacy theories suggest that larger boards may represent diverse interests and enhance ESG responsiveness [37,39], agency theory highlights the risk of inefficiencies and conflicts in oversized boards [38], especially in contexts with concentrated ownership [38]. As noted in the literature review, this is a particularly relevant concern in Saudi Arabia, where hierarchical board dynamics and ownership concentration can limit the effectiveness of board expansion. Based on the inconsistent findings from prior research and the theoretical framework, the unique governance structures and cultural norms in the Saudi context provide a strong theoretical basis for hypothesizing a negative association between board size and ESG disclosure. Accordingly, this study proposes the following hypothesis:

H2: 

Board size is negatively associated with ESG disclosure.

Figure 2 presents the conceptual research framework. ROA and board size are modeled as independent variables influencing ESG disclosure, guided by stakeholder, agency, and legitimacy theories. Control variables include number of employees, GDP growth rate, and leverage. ESG disclosure is measured through the overall ESG score and its environmental, social, and governance pillars, across three periods (pre-, during-, and post-COVID-19). The measurement of all variables is explained in the next section. This framework illustrates how financial performance and governance mechanisms interact with institutional factors to shape ESG outcomes in Saudi Arabia.

3. Research Methodology

3.1. Sample

This study evaluates the impact of ROA and board size on ESG disclosure practices among non-financial firms listed on Tadawul from 2009 to 2023. The focus on non-financial sector is due to its direct ESG impacts, relevant for studying ESG practices aligned with Saudi Vision 2030. The financial sector is excluded to ensure consistent comparisons across firms. To ensure robustness in panel data analysis, and following previous studies such as Al-Faryan and Shil [40] and Umar et al. [5], the sample was restricted to firms with at least four consecutive years of ESG disclosure data available in the Thomson Reuters DataStream. The final sample comprised 40 non-financial firms, yielding 260 firm-year observations.

Although the sample is relatively small, it captures all available non-financial listed firms in Saudi Arabia during the study period, making it representative of the broader non-financial sector. Similar sample sizes are common in ESG research within emerging markets, where firm-level disclosure is generally restricted to listed companies [5,8,40]. In addition, the 15-year coverage provides valuable longitudinal insights across pre-, during-, and post-COVID-19 periods. To mitigate concerns over sample size, the study applies several econometric techniques (OLS, FE, and GMM) with robustness checks, enhancing the credibility of the findings.

3.2. Measurement of Variables

This study employed one dependent variable (ESG scores), two independent variables (ROA and board size), and three control variables (number of employees, GDP, and leverage). These variables were chosen in accordance with other empirical studies in sustainability and corporate governance, which reveal these indicators to be important factors in determining ESG disclosure [1,41,42]. ESG scores serve as a proxy for corporate sustainability performance [4,17,18,43]. ROA is a well-established indicator of financial performance [10,44], while board size is a widely recognized element of corporate governance [13,45,46,47]. Number of employees captures organizational size [48,49], GDP reflects broader macroeconomic conditions [40,50], and leverage represents the firm’s capital structure [5,14,42].

Table 1. Operational Definitions and Measurements of Variables.

Variable	Label	Definition/Measurement	Source
Dependent Variables
ESG score	ESG	ESG Score is an aggregate metric that assesses a company’s overall environmental, social, and governance performance. It is based on self-reported data across these three pillars. The ESG score is calculated using the data reported by the company itself on these parameters, with each pillar having specific metrics that are assessed and aggregated. The score typically ranges from 0 to 100, where a higher score represents better overall ESG performance based on the company’s disclosure, practices, and policies. It serves as a comprehensive indicator for investors and stakeholders to evaluate the company’s sustainability and ethical practices.	Thomson Reuters DataStream
Independent Variable
Return on assets	ROA	Indicator of how profitable a company is relative to its total assets. It is calculated by Net Income/Total Assets.	Thomson Reuters DataStream And Annual reports
Board size	BSIZE	Number of members on a company’s board of directors.
Control Variable
Number of Employees	NOEM	Total number of employees	DataStream Worldscope
Gross domestic product rate	GDP	The annual percentage growth rate of GDP	World Bank Group
Leverage	LEV	Financial leverage, represented by the debt-to-equity ratio, shows how a firm’s capital is structured, highlighting the balance among debt and equity used for financing.	Thomson Reuters DataStream

Source: Authors’ construction.

contains a full description of the variables used.

3.3. Regression Model

This study employs a multiple regression analysis to investigate the impact of ROA and board size on ESG scores among Saudi non-financial firms from 2009 to 2023. The analysis is structured in two stages: Stage 1 examines the individual effects of each main independent variable (ROA and board size) on ESG disclosure, while Stage 2 incorporates both main independent variables alongside control variables (number of employees, GDP, and leverage) to assess their combined impact. This two-stage approach isolates the direct influence of ROA and board size before accounting for confounding factors, providing a clearer understanding of their standalone and interactive roles in driving ESG disclosure. This analysis enables the quantification of relationships between variables and provides crucial insights that enhance the current findings and conclusions [51].

The analysis begins with OLS regression to establish baseline relationships, followed by robust regression to address potential heteroskedasticity. Then Fixed Effects (FE) regression was conducted to account for unobserved firm-specific heterogeneity. This is consistent with panel data methodologies recommended by Moussa and Elmarzouky [13]. Finally, to address potential endogeneity—particularly between ESG scores and governance factors such as board size—the study employs the GMM. This is following the methodology of Chebbi and Ammer [8], Tarighi et al. [52] and Moussa and Elmarzouky [41], who used GMM to mitigate endogeneity in their governance studies. This advanced statistical method, as noted by Lee [53], is not a perfect solution but is very useful when applied carefully. This method uses lagged values of variables as instruments via an “internal transformation,” which helps isolate exogenous variation in predictors like BSIZE and ROA. The study regression models are specified as follows:

Stage 1: Models 1 and 2 evaluate the relationship between ROA, board size, on ESG disclosure.

$$\mathrm{E}\mathrm{S}{\mathrm{G}}_{\mathrm{d}\mathrm{i}\mathrm{s}\mathrm{c}\mathrm{l}\mathrm{o}\mathrm{u}\mathrm{s}\mathrm{r}\mathrm{e}}={\beta }_0+{\beta }_1 {\mathrm{R}\mathrm{O}\mathrm{A}}_{it}+{\epsilon }_{it}$$

(1)

$$\mathrm{E}\mathrm{S}{\mathrm{G}}_{\mathrm{d}\mathrm{i}\mathrm{s}\mathrm{c}\mathrm{l}\mathrm{o}\mathrm{u}\mathrm{s}\mathrm{r}\mathrm{e}}={\beta }_0+{\beta }_1 {\mathrm{B}\mathrm{S}\mathrm{I}\mathrm{Z}\mathrm{E}}_{it}+{\epsilon }_{it}$$

(2)

Stage 2: Model 3 examines the impact of ROA, board size and control variables on ESG disclosure.

$$\mathrm{E}\mathrm{S}{\mathrm{G}}_{\mathrm{d}\mathrm{i}\mathrm{s}\mathrm{c}\mathrm{l}\mathrm{o}\mathrm{u}\mathrm{s}\mathrm{r}\mathrm{e}}={\beta }_0+{\beta }_1 {\mathrm{R}\mathrm{O}\mathrm{A}}_{it}+{\beta }_2 {\mathrm{B}\mathrm{S}\mathrm{I}\mathrm{Z}\mathrm{E}}_{it}+\sum _{J=1}^n{\propto }_{Jit}-x_{Jit}+{\epsilon }_{it}$$

(3)

where ESG disclosure serves as the dependent variable. Return on assets (ROA) and board size (BSIZE) are the independent variables. ${\beta }_0$ is the intercept of the regression model and ${\epsilon }_{it}$ represents the error term of company i in time t. ${\beta }_1$ to ${\beta }_2$ are the estimated coefficients for the main testing variables and ${\propto }_{Jit}$ is the vector of estimated coefficients for the control variables. $x_{Jit}$ is a vector of all control variables: number of employees (NOEM), Gross domestic product rate (GDP), and leverage (LEV).

4. Empirical Results and Discussion

4.1. Descriptive Statistics

Table 2. Descriptive Statistics of Study Variables.

Variable	Obs.	Mean	Std. Dev.	Min	Max
ESG	260	31.14	20.69	0.73	82.59
ROA	260	7.17	7.26	−4.16	24.83
BSIZE	260	9.59	1.89	7	14
NOEM	260	11,080.55	11,345.96	413	40,000
GDP	260	2.84	3.79	−3.58	10.99
LEV	260	32.88	21.97	0	89.8

Note: Environmental, Social, and Governance score (ESG); Return on Assets (ROA); Board Size (BSIZE); Number of Employees (NOEM); Gross Domestic Product growth rate (GDP); Leverage (LEV).

presents the descriptive statistics of the studied variables. The sample consists of 260 observations across all variables. ESG has a mean of 31.14 (SD = 20.69), ranging from 0.73 to 82.59. The average ESG disclosure is higher than in previous studies in emerging economies (12.29) such as Alazzani et al. [54]. However, it is lower than the one reported in developed countries like (50.473) Moussa and Elmarzouky [13]. Sustainability practices are still emerging in economies like Saudi Arabia, not as advanced as in developed countries [55]. This suggests that developed nations have stronger ESG systems, while emerging markets are catching up due to growing global sustainability trends.

Regarding independent variables, ROA averages 7.17% (SD = 7.26), with values spanning from −4.16% to 24.83%. The average value exceeds that reported (3.70%) in earlier studies, such as Umar et al. [5], while maintaining a comparable context. The observed difference can be attributed to the increased sample size and the extended time frame examined in the current study. BSIZE shows a mean of 9.59 members (SD = 1.89), varying between 7 and 14 members. The range of this study is similar to the range of Umar et al. [5]. This could be explained by Saudi corporate regulations offering flexibility in board size, allowing companies to set their own numbers rather than dictating a specific range.

Concerning the control variables, NOEM has a mean of 11,080.55 (SD = 11,345.96), with a broad range from 413 to 40,000. This wide variation suggests significant differences in company scale within the sample, potentially influencing resource availability for ESG initiatives. GDP averages 2.84% (SD = 3.79), fluctuating between −3.58% and 10.99%, reflecting economic volatility that may impact firms’ capacity to prioritize sustainability. Lastly, LEV displays a mean of 32.88% (SD = 21.97), ranging from 0% to 89.8%. This indicates that different financing arrangements may have an impact on ESG practice investment based on debt levels. The descriptive statistics shows that there is wide range of values indicating adequate variation in the variables.

4.2. ESG Trends Across COVID-19 Periods

Table 3. Summary of ESG Score by period.

Period	Mean	Std. Dev.	Frequency
Pre-COVID	25.88	17.94	113
During COVID	33.61	21.48	86
Post-COVID	37.39	22.18	61
Total	31.14	20.69	260

presents the mean of ESG disclosure and standard deviations across three periods—pre-, during-, and post-COVID. The sample was divided into these periods to capture changes over time. The mean ESG score increased from 25.88 (SD = 17.94) pre-COVID to 33.61 (SD = 21.48) during-COVID, following the introduction of the Tadawul ESG Disclosure Guidelines in 2021. In the post-COVID period, the mean further rose to 37.39 (SD = 22.18), with an overall mean of 31.14 (SD = 20.69) across 260 observations, reflecting a gradual shift from low to moderate ESG disclosure levels, aligned with Saudi Vision 2030.

The significant increase in ESG scores during and after the pandemic, illustrated in Figure 3, indicates that crises such as COVID-19 may promote ESG adoption, especially in transitional economies experiencing regulatory reforms.

4.3. Correlation and Multicollinearity Analysis

A Pearson correlation analysis revealed no significant multicollinearity among the independent variables, as shown in

Table 4. Pearson Correlation Coefficient and Variance Inflation Factor analysis of Study Variables.

Variable	ESGS	ROA	BSIZE	NOEM	GDP	LEV	VIF	1/VIF
ESG	1.0000
ROA	−0.0496	1.0000					1.16	0.864832
BSIZE	−0.0401	0.1021	1.0000				1.01	0.985895
NOEM	0.3360 *	−0.0420	−0.0259	1.0000			1.03	0.968500
GDP	−0.0016	0.1109	0.0125	−0.0027	1.0000		1.01	0.985866
LEV	0.1349 *	−0.3505 *	−0.0915	0.1756 *	−0.0779	1.0000	1.18	0.846873
Mean VIF							1.08

Note: Environmental, Social, and Governance score (ESG); Return on Assets (ROA); Board Size (BSIZE); Number of Employees (NOEM); Gross Domestic Product growth rate (GDP); Leverage (LEV). * significant at 10%.

all coefficients were below 0.90 [56]. Therefore, all variables were included in the regression models. ESG positively correlates with NOEM (β = 0.3360, p < 0.10), indicating that companies with higher ESG scores tend to have more employees. Additionally, ESG shows a significant positive correlation with LEV (β = 0.1349, p < 0.10), suggesting higher leverage is associated with higher ESG scores. A Variance Inflation Factor (VIF) analysis confirmed the absence of multicollinearity, with all VIF values below 10 [57], making the variables suitable for regression analysis.

4.4. Regression Analysis

4.4.1. The Effect of Financial Performance on ESG Score

Table 5. The Effect of Financial Performance and Board Size on ESG score.

	OLS ESG			Robust ESG			Fixed Effects ESG	GMM ESG
Variables	Model 1	Model 2	Model 3	Model 1	Model 2	Model 3	Model 3	Model 3
ROA	−0.141 (−0.80)		−0.024 (−0.13)	−0.141 (−0.87)		−0.024 (−0.15)	−0.261 (−1.34)	0.001 (0.006)
BSIZE		−0.440 (−0.64)	−0.266 (−0.41)		−0.440 (−0.68)	−0.266 (−0.43)	−1.009 ** (−2.06)	−0.302 ** (0.129)
NOEM			0.001 *** (5.38)			0.001 *** (6.00)	0.000540 (0.88)	0.018 (0.083)
GDP			0.034 (0.11)			0.034 (0.10)	0.0947 (0.53)	0.009 (0.008)
LEV			0.069 (1.15)			0.069 (1.16)	−0.254 *** (−2.91)	−0.006 * (0.003)
Constant	32.153 *** (17.81)	35.359 *** (5.31)	24.980 *** (3.55)	32.153 *** (18.55)	35.359 *** (5.53)	24.980 *** (3.74)	44.78 *** (5.26)	3.728 *** (0.767)
Observations	260	260	260	260	260	260	260	260
R2	0.002	0.002	0.120	0.002	0.002	0.120	0.066	0.041
Adj. R2	0.001	0.002	0.102	0.001	0.002	0.102	0.197	0.022

Note: Environmental, Social, and Governance score (ESG); Return on Assets (ROA); Board Size (BSIZE); Number of Employees (NOEM); Gross Domestic Product growth rate (GDP); Leverage (LEV). Numbers in parentheses are t-statistics. * p < 0.1; ** p < 0.05; *** p < 0.01.

presents the regression results analyzing the impact of ROA and BSIZE on ESG disclosure among Saudi non-financial firms from 2009 to 2023, employing OLS, robust, FE, and GMM models. The OLS regression yields (R² = 0.120) and (adjusted R² = 0.102), indicating that approximately 12% of the variation in ESG disclosure is explained by the independent variables. The FE model shows weaker performance (R² = 0.066) and (adjusted R² = 0.197), likely due to its inability to account for unobserved heterogeneity and dynamic endogeneity. In contrast, the dynamic panel GMM estimator, designed to address endogeneity concerns, achieves R² = 0.041 and adjusted R² = 0.022. Although its explanatory power is lower, the GMM’s focus on isolating causal relationships makes it more reliable for inferential analysis. This confirms the fitness of the model. The panel consists of 260 firm-year observations, and the overall coefficient is statistically significant at a 1% significance level.

ROA exhibits a negative but statistically insignificant relationship with ESG disclosure across all models, failing to support H1. This indicates that profitability neither drives nor constrains ESG activities in Saudi Arabia, highlighting a disconnect between financial health and sustainability priorities. The finding aligns with studies such as Badar Ul Munir and Ishfaq [58] and Hansen and Xie [59], who observed null effects in Pakistan and post-Soviet EU states, respectively. Similarly, El Khoury et al. [10], which reported a negative and significant ROA–ESG link in the MENA countries, attributed this to weak stakeholder pressure or competing resource allocation.

Another possible explanation for the insignificant ROA–ESG link lies in sectoral variations, as capital-intensive industries often face higher disclosure costs with limited short-term benefits. Time lags can also play a role, since financial performance in one year can influence ESG initiatives only in subsequent years. Moreover, ownership concentration and the dominance of family firms in Saudi Arabia may weaken the pressure to use profitability as a driver of disclosure, as controlling shareholders often prioritize traditional governance practices. These contextual factors provide a more comprehensive view of why ROA does not consistently translate into higher ESG reporting in emerging markets like Saudi Arabia. These findings are consistent with broader GCC evidence, where family ownership concentration and hierarchical governance structures limit the extent to which profitability translates into enhanced ESG disclosure [35,36].

The insignificant association between ROA and ESG disclosure across all models contrasts with earlier Saudi-focused studies such as Umar et al. [5] and Chebbi and Ammer [8] that found a positive relationship. This may be due to the methodological differences in their analyses, which included ROA as a control variable without a strong theoretical foundation, and their reliance on smaller, pre-2021 datasets. In the evolving Saudi landscape, profitability may not yet be a primary driver for ESG, as firms might prioritize other economic diversification initiatives under Vision 2030 over sustainability signaling. This contrasts with theoretical expectations, which generally predict a positive ROA–ESG link under stakeholder, agency, and legitimacy perspectives.

To address this, policymakers could design subsidies, grants, or tax benefits to encourage ESG investments. Aligning executive compensation with ESG outcomes and mandating transparent reporting of ESG projects could foster the integration of sustainability into corporate operations. These recommendations align with Saudi Vision 2030, which aims to balance profitability with sustainability for a diversified economy.

4.4.2. The Effect of Financial Performance and Board Size on ESG Score

BSIZE shows a significant and negative association with ESG scores at the significance level of 5% in both the FE model (β = −1.009, p < 0.05) and in the GMM model (β = −0.302, p < 0.05). Therefore, H2 is empirically supported and accepted, suggesting that larger boards are associated with reduced ESG performance. Empirically, this result is similar to those of Nuhu and Alam [1] and Umar et al. [5], who found that larger board size was negatively linked to ESG disclosure. In contrast, this finding is not in line with Chebbi and Ammer [8] and Moussa and Elmarzouky [13], who contended that there was a positive and significant association between board size and ESG disclosure in the contexts of Saudi Arabia and the UK, respectively.

The observed negative relationship between board size and ESG disclosure is not unique to Saudi Arabia but rather reflects a broader pattern in emerging economies. The theoretical benefits of larger boards, such as enhanced diversity and expertise (as predicted by stakeholder theory), often do not materialize due to unique institutional and cultural contexts. For example, Saygili et al. [31] found that larger boards lead to coordination inefficiencies that weaken ESG outcomes in Turkish firms. Similarly, El Khoury et al. [10] observed a negative relationship between board size and ESG disclosure in MENA banks, which they attributed to limited external stakeholder pressure.

Furthermore, the specific governance culture in Saudi Arabia and the broader GCC reinforces this dynamic. Al-Janadi et al. [35] showed that family dominance undermines board diversity, while Mertzanis et al. [36] demonstrated that ownership concentration reduces board independence—both of which restrict effective ESG oversight and disclosure. These findings indicate that in transitioning economies with concentrated ownership structures and hierarchical decision-making, oversized boards can create inefficiencies and weak accountability, which ultimately undermines ESG transparency. Therefore, the study finding is consistent with a growing body of literature that recognizes how local governance norms in emerging markets often supersede the benefits of a larger board size.

The study emphasizes that small boards play a critical role in enhancing ESG disclosure in Saudi Arabia by fostering public trust and aligning governance practices with Saudi Vision 2030’s sustainability goals. To address governance challenges, it is recommended to revise corporate governance codes to mandate ESG-related board committees, implement sustainability-focused board training, and establish national ESG advisory councils. These measures would enhance accountability, equip boards to oversee ESG initiatives effectively, and align corporate strategies with national sustainability objectives.

Among the control variables, NOEM has a significant positive impact on ESG disclosure, indicating that larger organizations have greater capacity or face stronger stakeholder pressure to enhance transparency. This aligns with Saudi Vision 2030’s focus on sustainable business practices and workforce development, as initiatives like the National Industrial Development and Logistics Program and the Financial Sector Development Program emphasize workforce expansion and industrial growth, contributing to improved ESG performance.

In terms of LEV, it has a strong negative relationship with ESG, indicating that companies with higher debt are less likely to disclose information, possibly because of financial constraints or risk aversion. This finding resonates with Saudi Vision 2030’s push for financial stability and sustainable growth, highlighting how high leverage may hinder firms’ capacity to prioritize ESG transparency amid efforts to diversify and strengthen economic resilience. GDP, however, shows no significant effect on ESG disclosure, suggesting firm-level governance and stakeholder pressures play a more pivotal role than macroeconomic conditions. This aligns with Saudi Vision 2030’s emphasis on institutional reforms.

To complement the regression table, Figure 4 provides a conceptual diagram that illustrate the key findings more intuitively. As shown, ROA displays an insignificant association with ESG disclosure, while BSIZE demonstrates a significant negative effect. Among the control variables, NOEM positively influences ESG disclosure, whereas LEV shows a negative impact. GDP does not exhibit a significant relationship. This visual presentation reinforces the regression outcomes and highlights the central role of board structure and firm characteristics in shaping ESG disclosure within the Saudi context.

4.5. Robustness Check

To validate the reliability of the main findings, robustness checks were conducted using alternative ESG measures. This study employed individual ESG pillar scores (ENV, SOC, and GOV), following approaches adopted in prior research [8,54]. This would be better to capture the distinct contributions of each dimension. The results of OLS, robust, and FE models for each pillar are summarized in

Table 6. Robustness Check with Individual ESG Pillars (ENV, SOC, GOV).

	OLS			Robust			Fixed Effects
Variable	ENV	SOC	GOV	ENV	SOC	GOV	ENV	SOC	GOV
ROA	0.247 (1.23)	0.0522 (0.26)	−0.109 (−0.50)	0.247 (1.29)	0.0522 (0.32)	−0.109 (−0.49)	0.0978 (0.44)	−0.386 (−1.62)	−0.502 ** (−1.97)
BSIZE	0.202 (0.28)	−1.031 (−1.44)	1.257 (1.60)	0.202 (0.26)	−1.031 * (−1.66)	1.257 (1.62)	0.420 (0.76)	−0.922 (−1.54)	−1.731 *** (−2.71)
NOEM	0.000887 *** (7.29)	0.000494 *** (4.10)	0.000309 ** (2.34)	0.000887 *** (7.23)	0.000494 *** (4.24)	0.000309 ** (2.47)	0.00117 * (1.68)	0.000482 (0.64)	−0.000528 (−0.66)
GDP	−0.418 (−1.16)	0.0615 (0.17)	0.386 (0.98)	−0.418 (−1.14)	0.0615 (0.16)	0.386 (0.95)	−0.246 (−1.22)	0.139 (0.64)	0.382 (1.64)
LEV	0.0842 (1.25)	0.0877 (1.32)	0.196 *** (2.69)	0.0842 (1.14)	0.0877 (1.37)	0.196 *** (2.68)	−0.155 (−1.58)	−0.258 ** (−2.42)	−0.233 ** (−2.05)
Constant	7.370 (0.94)	27.83 *** (3.59)	23.04 *** (2.71)	7.370 (0.79)	27.83 *** (3.94)	23.04 *** (2.83)	10.62 (1.10)	41.20 *** (3.95)	77.93 *** (7.01)
N	260	260	260	260	260	260	260	260	260
R2	0.194	0.086	0.073	0.194	0.086	0.073	0.036	0.047	0.079
Adj. R2	0.178	0.068	0.054	0.178	0.068	0.054	0.236	0.221	0.181

Note: Environmental, Social, and Governance score (ESG); Return on Assets (ROA); Board Size (BSIZE); Number of Employees (NOEM); Gross Domestic Product growth rate (GDP); Leverage (LEV). * p < 0.1; ** p < 0.05; *** p < 0.01.

. The analysis shows varied impacts across ESG pillars, confirming the main results of the study. For GOV pillar, ROA shows a significant negative relationship, implying stricter governance reduces profitability, while BSIZE negatively impacts oversight quality. LEV displays divergent effects, positively correlating with governance disclosures in OLS but negatively in FE. For SOC pillar, LEV exhibits negative effects, reflecting debt pressures that constrain social initiatives. For ENV pillar, NOEM consistently enhances disclosure, underscoring regulatory and stakeholder pressure on larger firms. These robustness checks confirm the reliability of the primary findings while emphasizing distinct dynamics within each ESG dimension.

5. Conclusions

This study examines the relationship between ROA, board size, and ESG disclosure in Saudi non-financial firms using 260 firm-year observations from 2009 to 2023. The findings reveal key insights linked to Saudi Vision 2030. The results show that ROA has an insignificant relationship with ESG disclosure suggesting that firms often prioritize short-term goals over sustainability despite financial strength. Board size has a negative effect on ESG disclosure, highlighting governance inefficiencies in larger boards. suggesting that mandatory ESG-focused committees and diversity quotas could strengthen accountability. The number of employees positively influences ESG disclosure, while leverage negatively affects transparency, underscoring the role of firm characteristics.

5.1. Theoretical Contributions

The findings carry significant theoretical implications. The insignificant relationship between ROA and ESG disclosure contradicts stakeholder, agency, and legitimacy theories. According to agency theory, profitable firms should use ESG disclosure to demonstrate accountability, yet in Saudi Arabia this incentive appears weak. Legitimacy theory likewise suggests that profitability can drive disclosure as a way to gain societal approval, but limited social pressure reduces this effect. In contrast, the results for board structure are more consistent. Smaller boards are more efficient, supporting agency theory’s view that streamlined decision-making strengthens governance. Larger boards are expected to cover diverse ESG needs. However, they often lose effectiveness and struggle to legitimize operations under Vision 2030. Thus, these results suggest that profitability and board size alone are not sufficient to advance ESG in Saudi Arabia. Instead, stronger institutional support is needed, providing policymakers with a clear basis to refine governance structures and incentives.

5.2. Empirical Contributions

This study makes three key contributions. First, it repositions ROA and board size as central determinants of ESG disclosure in Saudi Arabia. Second, it leverages post-2021 ESG reforms to compile a broader and more representative dataset. Third, it employs advanced GMM estimation to address endogeneity and causality concerns, providing more reliable findings than earlier studies.

5.3. Policy Implications

At the policy level, regulators can strengthen ESG frameworks by requiring standardized, sector-specific disclosures, especially in high-impact industries. Third-party assurance could be introduced to improve report credibility. National ESG indices or ratings could encourage firms to compete on sustainability performance. Boards should link executive pay to ESG performance and form board-level ESG committees. Providing ESG training for board members would also build internal capabilities. These measures would support Saudi Vision 2030’s sustainability goals and move firms beyond symbolic compliance toward meaningful ESG integration.

5.4. Limitations and Future Research

While this study offers useful insights into ESG disclosure in Saudi Arabia, it has some limitations. It focuses only on ROA and board size, leaving out other governance factors like board independence, gender diversity, and ownership structure. The sample is also limited to 40 non-financial listed firms, yielding 260 firm-year observations. While relatively small, this dataset reflects the entire non-financial sector listed on Tadawul, which enhances its representativeness but may still limit generalizability to unlisted firms or other GCC markets. Furthermore, the analysis relies solely on Thomson Reuters scores, which may not fully capture the qualitative dimensions of ESG reporting.

Future research could address these gaps by incorporating additional governance variables to provide a deeper understanding of the factors influencing ESG disclosure in Saudi Arabia. These variables include board independence, gender diversity, and ownership structure. A combination of quantitative ESG scores with qualitative methods, such as content analysis of sustainability reports, would also offer more comprehensive insights. To improve generalizability and provide a comparative perspective, the analysis could be extended to other GCC countries. Finally, longitudinal research could examine how regulatory changes, investor pressure, and board reforms have shaped ESG practices under Saudi Vision 2030. Beyond governance, future studies could also explore the influence of cultural values on disclosure behavior, the growing role of international investors in shaping ESG expectations, and the adoption of integrated reporting as a pathway toward greater transparency.