Reconnecting sustainability reporting with earnings management: empirical evidence from Kuwait

Abstract

Purpose This study aims to examine the impact of environmental, social and governance (ESG) reporting on accruals-based earnings management (AEM) activities in Kuwait. Design/methodology/approach Based on a random-effects regression analysis, this study examines the relationship between sustainability reporting (SR), as determined by the intensity degree method and EM, as measured by AEM, using panel data from 37 listed Kuwaiti companies on the Kuwait Stock Exchange between 2017 and 2021. Findings Empirical results reveal that SR affects EM in Kuwait. It appears that socially responsible Kuwaiti firms concentrate their efforts on fostering transparency and integrity in their interactions with stakeholders rather than engaging in misleading practices. Practical implications This study suggests a range of practical implications in Kuwait and similar economies. The findings highlight that SR can be advantageous for individuals, policymakers and corporations by promoting positive impact, addressing sustainability targets, building stakeholder confidence, reducing the risk of exposure to environmental, social and ethical liabilities and enhancing public well-being. Originality/value This study creates a unique ESG data set for Kuwait, unavailable in academic research. Building upon previous study that focused only on the environmental aspect (Gerged et al., 2020), this research, however, adopts a broader approach by investigating the overall impact of ESG reporting on EM in Kuwait, making it the first study to explore this relationship in this country.