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Role of ESG Disclosure in Determining Earnings Management of GCC Firms: Moderating Role of Corporate Board Diversity

Author

Listed:
  • Laila Maswadi

    (Department of Accounting and Finance, College of Business, Jazan University, Jazan, Saudi Arabia)

  • Muzammal Ilyas Sindhu

    (Department of Accounting and Finance, Bahria University Islamabad, Pakistan)

  • Ruby Khan

    (Department of Accounting and Finance, College of Business, Jazan University, Jazan, Saudi Arabia)

  • Ameera Hakami

    (Department of Accounting and Finance, College of Business, Jazan University, Jazan, Saudi Arabia)

Abstract

[Purpose] Drawing on the stakeholder theory and legitimacy theory, this study aimed to examine the impact of ESG disclosure on earnings management with the moderating influence of board diversity. [Design/methodology/approach] This study employed the random GLS regression and moderation analysis to investigate the relationships. To investigate the aforementioned relationship, panel data for 91 firms from six countries of the GCC region were collected from DataStream. [Findings] Key findings posit a significant and positive association with ESG, its components, including environmental, social, and governance factors. Furthermore, there is a negative association with board diversity. Moreover, the remaining relationships were also found in light of theoretical assumptions and shown with optimal levels. In addition, the random GLS regression demonstrated a significant and positive relationship with ESG and earnings management. Our findings enable stakeholders to assess corporate ESS performance to determine the information asymmetry and make optimal asset allocation decisions. [Practical/Social Implications] Investors and regulators need to critically observe the firms in the GCC region, as ESG disclosures in emerging markets may not inherently signal reduced opportunism. However, firms with diverse boards provide stronger assurance of authentic ESG engagement, reducing information risk and enhancing the credibility of financial reporting. Our study results imply that regulators must ensure that corporations protect the public interest by providing reliable information to make informed decisions. [Originality/value] This study contributed to existing literature by uncovering the paradoxical role of ESG in facilitating earnings management in emerging markets and validating stakeholder theory through the moderating effect of board diversity. Our findings remain novel in determining that ESG measures can be used to determine the information asymmetry in emerging markets, thereby enabling GCC investors and regulators to focus on more stringent ESG disclosure and regulations.

Suggested Citation

  • Laila Maswadi & Muzammal Ilyas Sindhu & Ruby Khan & Ameera Hakami, 2025. "Role of ESG Disclosure in Determining Earnings Management of GCC Firms: Moderating Role of Corporate Board Diversity," Advances in Decision Sciences, Asia University, Taiwan, vol. 29(4), pages 141-160.
    • Handle: RePEc:aag:wpaper:v:29:y:2025:i:4:p:141-160
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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