The role of internal auditors in corporate social responsibility disclosure and its effect on financial performance: Evidence from Saudi financial institutions

Abstract

This study investigates the contribution of internal auditors to the enhancement of corporate social responsibility (CSR) disclosures along with the subsequent impact on the financial performance of firms that are listed on the Saudi Exchange (Tadawul). In the wake of government reforms set forth in Saudi Vision 2030, the study integrates CSR disclosures, audit effectiveness, and financial performance as interdependent constructs. Its findings are based on data that came from survey answers that were provided by 103 internal auditors and financial specialists (with an 81.1% response rate) as well as documentary evidence obtained from 45 firms on the Tadawul that were analyzed for the period 2021–2023 in order to create an index of CSR disclosure and calculate return on assets (ROA) and return on equity (ROE). The statistical analyses relied on partial least squares structural equation modeling (PLS-SEM) and fixed-effects panel regressions. The results demonstrate a negative correlation between CSR disclosure and financial performance for the entire sample, while the internal auditor construct does not show any significant direct influence. However, the study conducted a further analysis of the data based on company size that showed an important discrepancy: among the large companies there is a significant positive correlation between CSR disclosures and audit effectiveness in relation to ROA and ROE, while the overall correlation is negative. This conclusion allows for drawing the observation that the effects of CSR disclosure are shaped by company size and the specific pressures imposed by the post-COVID-19 recovery.