Role of ESG Disclosure in Determining Earnings Management of GCC Firms: Moderating Role of Corporate Board Diversity
DOI:
https://doi.org/10.47654/v29y2025i4p141-160Keywords:
Environmental social governance (ESG), Board Diversity, Earnings management, GLS regressionAbstract
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.
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