Initial Public Offerings and Quality of Earnings of Saudi Arabia

Published: 2021-07-09 16:35:06
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Category: Saudi Arabia

Type of paper: Essay

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RESEARCH MOTIVATION
To begin with, for many, Saudi Arabia is considered to be one of the fastest growing economies within the Middle East. In fact, during the past three years, the country has experienced quarterly GDP growth rates ranging between 3.8% and 10.7% (Trading Economics, 2014). As a result, this growth is illustrative of the tremendous number of opportunities for businesses within the country. Furthermore, the country is expected to have an increased amount of opportunities. Despite the potentialities for tremendous opportunities, many firms are reluctant to go public. The primary reason for this is that other companies have gone public and failed to generate the desired following of consumers (Barrak, 2005). Thus, to understand the reasons for these occurrences, it is necessary to look at other factors, such as marketing and labor quality, which could have an impact on the quality of earnings of Saudi Arabian employees. As a result, by determining these factors, it is possible to determine exactly what impact they have on Saudi Arabian firms and quality of earnings for Saudi Arabian employees.
RESEARCH BACKGROUND
In the past several years, Saudi Arabia has focused on reducing the overall amount of bureaucracy and time involved with regulatory filings. As a result, these filings declined from 64 to 39 days and required companies to file with the Ministry of Commerce. However, the changes of the filings have decreased the total capital paid to under $124,464. Thus, due to these changes, firms are encouraged to become publicly traded. Although these shifts have been beneficial, there are still considerable challenges. In fact, the most significant challenges are related to the enforcement of contracts and labor issues. As such, these areas are undermining any reforms by making it difficult for corporations to increase revenue, which could increase quality of earnings for Saudi Arabian employees (O’Kane, 2013). Finally, the challenges may prohibit GDP growth for the country as a whole.
RESEARCH PROBLEMS
Unsurprisingly, the enforcement of contracts is one of the most significant challenges for most companies. This is because the country follows Sharia law. Sharia law is a religious ideology that is integrated with basic legal concepts. It notes that if something (within the contract) is not covered, there is potential for one party to not honor their commitments. When contracts are not honored, firms can lose money, which can decrease the quality of earnings for Saudi Arabian employees. Thus, many companies become wary of engaging in any transactions. However, when a company goes public, it will likely face these challenges regularly. This is due to the necessity of entering into various contracts necessary for listing on the stock exchange, the provision for legal representation, and the provision for accounting services (O’Kane, 2013). These factors can create numerous other problems for the company.
For instance, these issues increase the related costs of conducting filings. At the same time, there is the probability of the company being unable to seek legal recourse due to one party’s refusal to honor their commitments. As a result, the company can face significant losses, causing the quality of earnings for Saudi Arabian employees to decrease drastically (O’Kane, 2013). This creates labor issues.
With a decreased quality of earnings for Saudi Arabian employees, productivity will decrease, which will adversely affect corporate profits. This is due to the fact that companies are required to have a particular percentage of Saudi Arabian nationals working for them. This information is required to be filed with the Ministry of Labor and the General Organization for Social Insurance. Furthermore, companies are required to register anyone who is not a citizen with the Passport Agency and receive approval for a work permit. These activities can be costly (Shoult, 2006). As a result, profit may decrease, causing the availability of funds for quality earnings to decrease.
RESEARCH OBJECTIVES
Based on the background information, the researcher has developed the following objectives:
1. Determine all challenges related to companies going public and how they relate to the quality of earnings
2. Determine long-term benefits of going public and how they relate to the quality of earnings
3. Determine alternative avenues for raising new working capital and how they relate to the quality of earnings
RESEARCH QUESTIONS
The research question has developed the following questions:
1. How do the challenges of going public affect the bottom line of the company?
2. How do the challenges of going public affect the labor quality and productivity of the company?
3. How do the challenges of going public affect the quality of earnings of Saudi Arabian employees?
RESEARCH HYPOTHESIS
Based on the research objectives and questions, the researcher has developed the following hypotheses:
1. The quality of earnings for Saudi Arabian employees is adversely affected by the company going public.
2. The company is adversely affected, in terms of productivity and finances, by going public.
RESEARCH METHODOLOGY
The recommended research methodology is a mixed methods study. This can be done with qualitative and quantitative data analysis. Qualitative data can be obtained from employees of companies through use of a survey that would allow the researcher to determine how the current wages are in terms of quality and amount. Quantitative data can be obtained from financial statements of private and public companies.


References
Barrak, A. (2005). Initial Public Offerings in Saudi Arabia. Retrieved September 2014, from https://theses.ncl.ac.uk/dspace/bitstream/10443/1563/1/Al-Barrak,%20A%2005.pdf
O’Kane, M. (2013). Saudi Arabian Labor Law. Chicago: Andalus Publishing.
Shoult, A. (2006). Doing Business with Saudi Arabia. London: Blue IBEX.
Trading Economics. (2014). Saudi Arabia Growth Rate. Retrieved September 2014, from http://www.tradingeconomics.com/saudi-arabia/gdp-growth

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