5.1 Principal findings
Using the methods described earlier, we assess the weak-form efficient market hypothesis by testing the RWH. To perform the variance ratio test of a random walk, we calculate the VRs and VR(k) for the homoscedastic Z(k) and heteroscedastic Z*(k) cases for each k = 2, 4, 8, and 16. To ensure the SSM follows the RWH and accepts the null hypothesis of a random walk, and thus the weak-form version of the efficient market hypothesis, the variance ratio test should be equal to unity to refute the presence of autocorrelation between intervals. In other words, the ratio of 1/k times the variance of the k-differences over the variance of the first differences should be equal to unity. If the results show that VR(k) > 1 or VR(k) < 1, then a positive or negative autocorrelation would strongly suggest that opportunities to predict future price changes exist. Further, if such potential for exploiting market prices were present, it would provide sufficient grounds for refuting the RWH for the SSM, thereby rejecting the weak-form efficiency of the market.
The empirical analysis commences with the daily returns data, followed by the weekly observed returns, and then the monthly observed returns. The results from applying both
VR statistics with homoscedastic and heteroscedastic error terms, respectively denoted by
Z(k) and
Z*(k), of the stock return series at different intervals (2, 4, 8, and 16) are presented in Table
4. The individual
VRs,
VR(k), are reported in the main rows, and the Z-statistics are given immediately below. For the daily observed stock return series reported in Panel A for the entire sample period of 1994–2016, the values indicate that we can reject the RWH for all sample intervals of
k. The evidence suggests that both autocorrelation and heteroscedasticity may be present in the daily stock prices of the securities traded on the SSM. The Z-statistics associated with intervals
k =
2, 4, 8, and 16 are 7.07, 5.33, 5.83, and 5.47, respectively. In addition, a close examination of the heteroscedasticity-consistent variance ratio test statistic,
Z*(k), indicates that when heteroscedastic disturbances are present, the null of the RWH is rejected for all
k values at the chosen levels of significance. The findings suggest that the refutation of the RWH for all
k intervals under the homoscedastic test statistic is due to the existence of heteroscedasticity and not mean reversion, thereby lending strong support to H2. The estimates for the weekly and monthly observed returns follow similar patterns, so that the hypothesis that the stock price series is in step with a homoscedastic random walk is firmly rejected, which is in accordance with prior expectations and thus lends support to H2. Essentially, the above result may originate from either autocorrelation or heteroscedasticity in the stock price series. The results also indicate that the hypothesis of a heteroscedastic random walk is firmly rejected, suggesting that the autocorrelation of weekly and monthly increments in stock prices on the SSM results in the RWH are outright rejected, thus supporting H2.
Table 4
Variance ratios for daily, weekly, and monthly returns
Panel A: 1994–2016 | | | | |
Daily | VR(k) | 1.09 | 1.13 | 1.22 | 1.30 |
Z (k) | 7.07*** | 5.33*** | 5.83*** | 5.47*** |
Z*(k) | 3.23*** | 2.36** | 2.58*** | 2.50** |
Weekly | VR(k) | 1.12 | 1.23 | 1.34 | 1.53 |
Z(k) | 3.92*** | 4.17*** | 3.85*** | 4.06*** |
Z*(k) | 2.11** | 2.34** | 2.19** | 2.44** |
Monthly | VR(k) | 1.20 | 1.40 | 1.75 | 1.99 |
Z(k) | 3.23*** | 3.57*** | 4.21*** | 3.74*** |
Z*(k) | 2.11** | 2.51** | 3.15*** | 2.90*** |
Panel B: 1994–2006 | | | | |
Daily | VR(k) | 1.08 | 1.06 | 1.19 | 1.32 |
Z(k) | 5.05*** | 2.05** | 4.01*** | 4.44*** |
Z*(k) | 2.03** | 0.80 | 1.56 | 1.78* |
Weekly | VR(k) | 1.23 | 1.38 | 1.53 | 1.83 |
Z(k) | 5.77*** | 5.19*** | 4.56*** | 4.81*** |
Z*(k) | 2.96*** | 2.79*** | 2.39** | 2.63*** |
Monthly | VR(k) | 1.27 | 1.57 | 2.13 | 2.59 |
Z(k) | 3.36*** | 3.75*** | 4.74*** | 4.47*** |
Z*(k) | 2.14** | 2.49** | 3.29*** | 3.37*** |
Panel C: 2007–2016 | | | | |
Daily | VR(k) | 1.10 | 1.19 | 1.24 | 1.27 |
Z(k) | 4.77*** | 5.03*** | 3.98*** | 3.09*** |
Z*(k) | 2.53** | 2.57** | 2.06** | 1.66* |
Weekly | VR(k) | 1.01 | 1.09 | 1.15 | 1.15 |
Z(k) | 0.31 | 1.04 | 1.12 | 0.78 |
Z*(k) | 0.18 | 0.62 | 0.69 | 0.52 |
Monthly | VR(k) | 1.12 | 1.16 | 1.20 | 0.89 |
Z(k) | 1.32 | 0.94 | 0.74 | − 0.28 |
Z*(k) | 0.90 | 0.72 | 0.63 | − 0.25 |
Panel B presents the results for the sub-period of 1994–2006, the period before the CMA began shaping corporate governance in Saudi Arabia. The values indicate that the hypothesis that VR(k) = 1 can be rejected based on the homoscedastic assumption. Further, the variance ratio test also highlights the presence of positive serial correlation in the daily stock prices of the stocks traded on the SSM. Turning to the heteroscedasticity-consistent variance ratio statistic, Z*(k), when heteroscedastic disturbances are under scrutiny, the null hypothesis of a random walk is refuted, which again supports H2. The Z-statistics for intervals k = 2 and k = 16 are 2.03 and 1.78, respectively, thus leading to rejections at the 5% and 10% levels. The variance ratio test also suggests the presence of a positive correlation in daily price series across intervals, since it would be erroneous for the RWH to be rejected because of the reported values, which are biased owing to the presence of heteroscedasticity in the stock price series. We also report the Z-statistics adjusted for this violation of homoscedasticity; however, the results remain the same.
A similar result is attained for the weekly and monthly data. Again, the individual VRs, VR(k) based on weekly and monthly returns are refuted at the selected significance levels, again supporting H2. For both the weekly and monthly frequencies, the variance ratios are larger than unity, indicating that variances grow more than proportionally with time. For these two data frequencies, from the heteroscedasticity-consistent variance ratio test statistic, Z*(k), the null hypothesis of a random walk is refuted when heteroscedastic disturbances are under consideration for all k values at the chosen levels of significance. Under the homoscedastic test statistic, the results point to the rejection of the RWH for all k intervals due to the presence of heteroscedasticity, further supporting H2. For the weekly stock price series, the Z-statistics associated with intervals k = 2, 4, 8, and 16 are 5.77, 5.19, 4.56, and 4.81, respectively, while for the monthly series, the Z-statistics are 3.36, 3.75, 4.74, and 4.47, respectively. These findings are expected, particularly since the sample encompasses the stock market crash of 2006, which exposed deep inefficiencies in market operations along with insider trading, share price manipulation, and false statements. These behaviours had the tacit approval of the existing weak regulatory regime and that of Saudi policymakers, thereby helping compound the market inefficiency.
From Panel C, for sub-period 2007–2016, which includes the period of the global financial crisis, the estimates for the daily stock price series indicate we can reject the hypothesis of a random walk for all k intervals. The results strongly suggest that stock prices do not accord with the RWH, since the VR(k) values are significantly different from 1, and the stocks traded on the SSM have the simultaneous properties of autocorrelation and heteroscedasticity, thereby supporting H2. Based on the heteroscedasticity-consistent variance ratio test statistic, Z*(k), when heteroscedastic disturbances are considered, the rejection of the null hypothesis of a random walk is confirmed for all k intervals at the selected significance levels. These estimates indicate that the outright rejection of the RWH for all k intervals under the homoscedastic test statistic, Z(k), is related to the presence of heteroscedasticity. The Z-statistics for intervals k = 2, 4, 8, and 16 are 4.77, 5.03, 3.98, and 3.09, respectively. Given that these statistics point to the SSM being an informationally inefficient market, it is worth mentioning that the impact of the 2007–2009 financial crisis had a further unsettling effect on the SSM, as it revealed the same inefficiencies in the operation of the market that were present in the period leading to the SSM crash of 2006. These include a trading environment plagued by insider trading, illegal speculation for the stocks of Saudi companies, poor regulatory oversight, and unwillingness of regulators to impose sanctions for market abuse. Further, a lack of transparency and disclosure by listed companies, many of whom failed to disclose their financial statements, prompted policymakers to outline and implement a series of credible policies designed to not only calm the market but also restore investors’ confidence at a time when the market was deteriorating more rapidly than in 2006. Specifically, widespread changes were made in market transparency and financial reporting, in addition to giving the CMA enforcement powers, including regulatory powers. With its new powers, the CMA initiated the adoption of International Reporting Standards and fined the companies that failed to provide their reports on time. The CMA also invited foreign investment institutions (and thus, good financial practices such as analysts’ recommendations) to invest in the Saudi market and, most importantly, it created the corporate governance codes. These actions were seen by the market as reflecting that policymakers had learnt from the mistakes of 2006 and understood it was necessary to calm the markets and restore investor confidence – which is key for economic recovery, development, and growth – to put in place sustainable measures for improving SSM efficiency.
Further, the results for the weekly and monthly stock price series indicate that the market efficiency level improved, which may account for the impact of the above-mentioned policies, as the variance ratios at various intervals are greater than unity. For both data frequencies, the Z*(k)s are non-significant, suggesting that the ratios are not significantly different from unity, and the null hypothesis of a random walk for all k intervals cannot be refuted. It should also be noted that, for both data frequencies, under the assumption of homoscedasticity, the values suggest we cannot refute the null hypothesis of a random walk for every k interval. The Z-statistics with intervals k = 2, 4, 8, and 16 for the weekly data are 0.31, 1.04, 1.12, and 0.78, respectively, while for the monthly data, these are 1.32, 0.94, 0.74, and − 0.28, respectively.
To further investigate whether stock prices on the SSM follow the RWH, we apply the
MVR test of Chow and Denning (
1993) to adjust for the bias that may arise from the joint nature of the
VR test.
2 Following Lo and MacKinlay (
1988) and Poterba and Summers (
1988), the Z-statistics in Panel A of Table
5 are compared with the normal and
SMM distribution critical values, as reported in Chow and Denning (
1993), for achieving a more accurate estimate of the degree of bias. For all data frequencies, we display values of the multiple variance ratio statistics with homoscedastic,
MVRZ(k), and heteroscedastic,
MVRZ*(k), incremental random walks.
Table 5
Multiple joint variance ratio (MVR) tests
Panel A: 1994–2016 | |
Daily |
MVRZ(k) | 7.07*** |
MVRZ*(k) | 3.23*** |
Weekly |
MVRZ(k) | 4.17*** |
MVRZ*(k) | 2.44* |
Monthly |
MVRZ(k) | 4.21*** |
MVRZ*(k) | 3.15*** |
Panel B: 1994–2006 | |
Daily |
MVRZ(k) | 5.05*** |
MVRZ*(k) | 2.03 |
Weekly |
MVRZ(k) | 5.77*** |
MVRZ*(k) | 2.96** |
Monthly |
MVRZ(k) | 4.74*** |
MVRZ*(k) | 3.37*** |
Panel C: 2007–2016 |
Daily |
MVRZ(k) | 5.03*** |
MVRZ*(k) | 2.57** |
Weekly |
MVRZ(k) | 1.12 |
MVRZ*(k) | 0.69 |
Monthly |
MVRZ(k) | 1.32 |
MVRZ*(k) | 0.90 |
At the selected significance level, the homoscedastic and heteroscedastic versions of the test reject the null hypothesis of a random walk for the SSM for the daily, weekly, and monthly stock price series for the full sample period of 1994–2016. The null hypothesis that stocks traded on the SSM follow a homoscedastic random walk is rejected, since MVRZ(k) of 7.07 > 2.49. This rejection of the RWH under homoscedasticity may well stem from heteroscedasticity and/or autocorrelation in the stock price series. Notably, the MVRZ*(k) of 3.23 > 2.49, thereby refuting the null hypothesis of a heteroscedastic random walk. Similar results are obtained for the weekly and monthly return series. For both stock price series, the homoscedastic and heteroscedastic RWH are rejected owing to the presence of significant positive autocorrelation, which supports H2.
Table
5, Panel B reports the results for the pre-corporate governance sub-period 1994–2006; for the daily series, the null hypothesis that the stock price series follows a homoscedastic random walk is rejected, since
MVRZ(k) = 5.05. As
MVRZ*(k) = 2.03, we do not reject the null hypothesis of a heteroscedastic random walk. For the weekly and monthly observed returns, the results follow a similar pattern; that is, the homoscedastic and heteroscedastic RWHs are rejected owing to the presence of positive autocorrelation in the stock price series.
Panel C reports the estimates for sub-period 2007–2016, during which there was a concerted effort by policymakers to implement a series of measures designed to improve the level of corporate governance in Saudi Arabia. The results for the daily return series indicate that, on account of the values of MVRZ(k) = 5.03 and MVRZ*(k) = 2.57, stocks traded on the SSM seem not to subscribe to the RWH. The weekly stock price series indicate that, for the estimates, the null hypothesis that stock prices follow a random walk process is not rejected, since MVRZ(k) = 1.12 under homoscedasticity and MVRZ*(k) = 0.69 under heteroscedasticity. Further, the results for the monthly return series are markedly different from the daily ones but are the same for the weekly stock price series. For the monthly series, MVRZ(k) = 1.32 and MVRZ*(k) = 0.90. Therefore, the RWH is not rejected.
Overall, it can be conjectured that the evidence is strong that stocks traded on the SSM do not follow the hypothesis of random walk, since daily data tend to contain more information than weekly and monthly data. Therefore, it is reasonable to conclude that the SSM is weak-form inefficient. Although, the results from the monthly and weekly data frequencies strongly suggest the market appears to have evolved towards relative efficiency, especially during the post-corporate governance code period, which does affirm H1. In this case, market capitalisation and liquidity may well have played a role in accounting for this result, not discounting the series of reforms the CMA implemented to ameliorate the operation of the SSM. The dissemination and enforcement of tighter regulations and rules pertaining to SSM management, combined with the emphasis on informational transparency and with information transmission, had a positive effect on SSM efficiency.
Although Chow and Denning’s (
1993)
MVR test eliminates the limitations posed by the individual and
MVR tests, it is noteworthy to mention that both tests are predisposed to statistical bias due to the violation of the normality requirements. This is because such parametric tests are likely to lead to a statistical bias from the use of non-normally distributed time series under normality requirements.
For robustness, we apply Richardson and Smith’s (
1991) WALD test and the runs test on the stock price series for daily, weekly, and monthly data (see Table
6). It is of particular interest to see how Richardson and Smith’s WALD test results stand in relation to the single and
MVR test results. For each set of data frequencies reported in Panel A for the entire period, the results indicate that the hypothesis that stocks traded on the SSM follow a random walk is not supported, which corroborates the single and
MVR test results and thus affirms H2. Similar to the entire period’s results, for the sub-period results in Panel B (1994–2006, or the pre-corporate governance period), the WALD test indicates the outright rejection of the random walk behaviour of stocks traded on the SSM for daily, weekly, and monthly data, thereby confirming H2.
Table 6
WALD tests for the daily, weekly, and monthly Saudi stock market returns
Panel A: 1994–2016 | |
Daily | 67.75*** |
Weekly | 23.83*** |
Monthly | 19.67*** |
Panel B: 1994–2006 |
Daily | 79.50*** |
Weekly | 42.69*** |
Monthly | 25.49*** |
Panel C: 2007–2016 | |
Daily | 27.09*** |
Weekly | 1.96 |
Monthly | 5.44 |
For the second sub-period (2007–2016, or the post-corporate governance period), the results show that, while the WALD test rejects the RWH for daily data, the hypothesis is supported for the weekly and monthly data frequencies. These results imply a degree of sub-period efficiency improvement and, moreover, the effectiveness of the reforms, including the role played by the SSM in promoting good corporate governance of the listed Saudi companies (including reforms directed at increasing transparency and disclosure rules, as previously noted), which affirms H1. Accordingly, the findings suggest that there is a close relationship between the development of the SSM and the system of corporate governance. As such, the SSM may be considered an effective mechanism for instilling good corporate governance practices among the listed Saudi companies.
It should be noted that the runs test is a non-parametric test, primarily concerned with the randomness of the sequence of price changes in a time series of stock prices. As such, it may be viewed as being either (i) a succession of price changes of the same sign, or (ii) a succession of zero price changes. Therefore, the test results accept the null hypothesis of independence of successive price changes for the stock price series whenever there is a close enough match between the expected and actual number of runs. The significant presence of a large/low number of actual runs compared with the number of expected runs would reject the RWH. Table
7 displays the estimates of the results of the runs test of
M and
Z for the daily, weekly, and monthly stock price series.
Table 7
Runs test on the Saudi stock market
Panel A: 1994–2016 |
Daily | 6296 | 2751 | 3149 | 39.6705 | − 10.0326*** |
Weekly | 1145 | 508 | 573.5 | 16.9115 | − 3.8731*** |
Monthly | 274 | 122 | 138 | 8.26136 | − 1.93673* |
Panel B: 1994–2006 |
Daily | 3802 | 1592 | 1902 | 30.8261 | − 10.0564*** |
Weekly | 644 | 270 | 323 | 12.6787 | − 4.18023*** |
Monthly | 154 | 61 | 78 | 6.18466 | − 2.74874*** |
Panel C: 2007–2016 |
Daily | 2493 | 1159 | 1247.5 | 24.96 | − 3.54568*** |
Weekly | 500 | 238 | 251 | 11.1692 | − 1.16392 |
Monthly | 119 | 61 | 60.5 | 5.43139 | 0.0920575 |
From Panel A, over the entire period (1994–2016), the runs test indicates that the null hypothesis of randomness is refuted for all data frequencies at the selected significance levels, since the Z-statistics are − 10.0326 for the daily price series, − 3.8731 for the weekly series, and − 1.93673 for the monthly series, which affirms H2. These values are higher than the critical ones, indicating an overwhelming rejection of the randomness of data frequencies due to the presence of statistically significant serial correlation.
Considering the first sub-period (1994–2006), the Z-statistics in Panel B indicate that the RWH is refuted, for not only the daily and weekly stock price series but also the monthly returns, which is consistent with the positive serial correlation of returns. This provides evidence against the stock market being characterised as weak-form efficient, thus lending strong support for H2. However, as this is the period prior to the implementation of corporate governance code, it will be interesting to see the impact of the implementation of corporate governance codes on the overall efficiency of the stock market. Thus, the central question that arises here is whether the implementation of a corporate governance code improved the efficiency of the SSM?
Panel C reports the values of the Z-statistics for sub-period 2007–2016, reflecting the effects of the implementation of the Saudi corporate governance code. This indicates a strong rejection of the RWH for the daily stock price series, as the Z-statistic is − 3.54568, which is consistent with the positive serial correlation of returns. With weekly data, the Z-statistic is − 1.16392, which is non-significant. Therefore, the RWH is not rejected for this data frequency, thereby lending support to H1. Additionally, with monthly data, the results show that the Z-statistic is 0.0920575. Therefore, the RWH is not rejected for monthly data. However, Tables
4–
7 display evidence consistent with the literature in rejecting the RWH (see Shiller and Perron
1985; Summers
1986; Poterba and Summers
1988; Lo and MacKinlay
1988; Urrutia
1995; Grieb and Reyes
1999; Abraham et al.
2002; Al-Khazali et al.
2007; Hoque et al.
2007). Particularly, the results are consistent with the findings of not only Urrutia (
1995), who rejects the null RWH for Latin American emerging markets, but also Al-Khazali et al. (
2007) for a group of Middle Eastern stock markets and Hoque et al. (
2007) for a group of Asian markets. The results also suggest the common characteristics of emerging markets, which emphasise that prices and returns are negatively serially correlated, with the serial correlation becoming increasingly negative as the interval increases. If such a process governs returns, the
VRs should be less than unity for longer horizons. Overall, the empirical evidence does not contradict these implications that the stock price series do not follow the RWH, thus confirming H2.
The implication is that the inefficiencies in the SSM mean there are profitable opportunities for astute market agents who are perhaps better informed at the expense of less informed investors. Such inefficiency is more likely to result in a large cost to the Saudi government, meaning that the ensuing inefficient allocation of resources must somehow be absorbed, and policymakers must instigate measures to reduce the costs that naturally arise from an inefficient stock market. One way of tackling this inefficiency would be for the CMA to seek improvements to the legal system and continue to reform the Saudi corporate governance system by improving the regulatory framework and increasing the transparency and internal controls of listed corporations. That is, underdeveloped legal, information, and corporate governance systems affect the price discovery process and can be at fault for slowing down the pace at which new information can be incorporated into security prices.
Therefore, the results in Tables
4 and
5 are reinforced when applying the Richardson and Smith WALD test and runs test. One reason is that the SSM pertains to a still developing market, characterised by Group of Seven (G7) standards, low liquidity, investors’ trading on less than accurate information, less than adequate disclosures, and non-trivial barriers to entry, such as restrictions on the participation of international investors (which have only recently been removed). The results could also be due to the presence of time-varying risk premia. Furthermore, these are nominal returns from an emerging oil dependent economy whose significant price volatility shook the confidence of the market over the analysed period as a result of a series of price adjustments. These adjustments also resulted in reducing market liquidity and may have contributed to a reduction in overall market efficiency. Consequently, the SSM may be considered less efficient than developed G7 stock markets, despite the significant efforts of policymakers to ensure that the technical and organisational aspects of the market environment mimic those of G7 markets. It may also be conjectured from Tables
6 and
7 that, while the RWH is refuted for the full sample and the pre-corporate governance code period, there are improvements in the overall efficiency of the SSM based on both weekly and monthly data. This improvement in efficiency may partly be explained by the series of reforms that policymakers have embarked upon in recent years to improve the operation of the SSM. During 2007-–2016, the enforcement of regulations and laws regarding the management of the market, informational transparency, and information transmission has positively influenced SSM efficiency.
In this respect, most of the improvement in the pricing efficiency of the SSM comes from measures implemented by policymakers as a result of the impact of the 2007–2009 global financial crisis, as well as the participation of non-GCC foreign investors in the market. This change may have reduced the information disadvantage of foreign investors and facilitated a more rapid information diffusion amongst them. Additionally, the regulatory changes may also have resulted in increased domestic investor participation, which could be important from a corporate governance perspective, because the managers of the listed companies characterised by effective and strong governance are expected to be monitored more strictly; they are therefore more inclined to be transparent and less inclined to withhold information. Therefore, we expect listed Saudi companies with better corporate governance levels to have more credible information and for such information to be perceived as being more reliable; see, for example, Bushee and Noe (
2000) and Beekes and Brown (
2006) for details. In this setting, Diamond (
1985) notes that increased information disclosure will have the effect of reducing not only information asymmetry between management and traders, but also traders’ motivation for private information acquisition, thereby resulting in reduced heterogeneity among traders’ beliefs and a minimal speculative position among informed traders. Moreover, Leuz et al. (
2003) posit that effective governance is more likely than not to reduce information asymmetry, while also increasing transparency. In this context, corporate governance mechanisms may be key to explaining the improvements in SSM efficiency and the relevance and effectiveness of corporate governance for listed Saudi companies. As informational problems become more relevant, stricter adherence to corporate governance codes by listed companies should improve the timely release of information, and the information may be perceived as more reliable and have a favourable impact on the timeliness of the price discovery process. That is, relevant private information that would otherwise have been kept private is readily incorporated into publicly observable market prices.
However, the mere presence of corporate governance in a given system and the broad-scale acceptance and adherence to its principles do not guarantee economic success but make the process of managing the associated ownership risk more efficient. New information technologies, particularly the trading system, have played an increasingly important role in promoting and improving corporate governance. Interestingly, over all data frequencies, the results show sub-periods of efficiency increases for both the weekly and monthly stock price series during the post-corporate governance period. On an optimistic note, the evidence suggests that, by embracing better governance standards, efficiency increases as a result of the promotion and observance of good corporate governance in listed companies, along with the observance of other rules related to transparency and improved disclosure. The discipline of listed companies in their observance of good corporate governance practices seems to indicate that to improve the efficiency of the SSM, policymakers should continue to address governance issues, while the SSM should provide incentives for enhanced and better corporate governance for listed companies.
Although the results based on weekly and monthly data indicate improvements in sub-period market efficiency made by improving corporate governance, the situation is more complex. In fact, corporate governance and market efficiency tend to be affected by predetermined factors (e.g. origin of the legal code) and, hence, cannot be easily improved. A comparison with the period prior to the post-corporate governance period shows the SSM to be inefficient and supports H2, while the results in Tables
6 and
7 imply the sub-period efficiency of the SSM in recent years, supporting H1. Particularly, as a financial crisis affects the global stock market, policymakers, the SSM, and investors are likely to devote themselves to enhancing stock market efficiency to mitigate the effects of the crisis. It should be emphasised that the findings also suggest that the SSM needs to particularly work on creating rules, disseminating standards, ensuring the activation of standards, and activating best practices in corporate governance for Saudi listed companies. This includes the creation of positive and best practice models of corporate governance, and the more difficult task of codifying the already created rules; it also involves the elimination of inappropriate behaviours and habits that have been hitherto difficult to eradicate.