Masmoudi, Sana
A icle
E alua ing he E ec s o ESG Repo ing on Ea nings
Managemen in An Eme ging Economy
Jou nal o Accoun ing and Managemen In o ma ion Sys ems (JAMIS)
P o ided in Coope a ion wi h:
The Bucha es Uni e si y o Economic S udies
Sugges ed Ci a ion: Masmoudi, Sana (2024) : E alua ing he E ec s o ESG Repo ing on Ea nings
Managemen in An Eme ging Economy, Jou nal o Accoun ing and Managemen In o ma ion
Sys ems (JAMIS), ISSN 2559-6004, Bucha es Uni e si y o Economic S udies, Bucha es , Vol. 23, Iss.
3, pp. 507-530,
h ps://doi.o g/10.24818/jamis.2024.03003
This Ve sion is a ailable a :
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Accoun ing and Managemen In o ma ion Sys ems
Vol. 23, No. 3, pp. 507-530, 2024
DOI: h p://dx.doi.o g/10.24818/jamis.2024.03003
E alua ing he e ec s o ESG epo ing on
ea nings managemen in an eme ging economy
Sana Masmoudi1,a
aEcole Supé ieu e de Comme ce, Uni e si y o S ax, Labo a o y Economic
and Financial Analysis and Modeling Resea ch: LRAMEF, Tunisia
Abs ac
Resea ch ques ion: How does he disclosu e o En i onmen al, Social, and Go e nance
(ESG) in o ma ion a ec he p ac ice o ea nings managemen (EM) in he Kuwai i con ex ?
Mo i a ion: This esea ch is mo i a ed by he g owing emphasis on ESG elemen s in
co po a e epo ing and go e nance wo ldwide, and i aims o in es iga e he ela ionship
be ween ESG disclosu es and ea nings managemen in he Kuwai i business en i onmen . In
Kuwai , business o ganiza ions a e equi ed o epo ESG in o ma ion in o de o ul ill
changing s akeholde and egula o y demands o inc eased openness. This s udy aims o
cla i y he ways in which hese disclosu es a ec Kuwai i company beha io and inancial
epo ing p ocedu es, especially in ligh o ecen egula o y and economic changes ha a o
be e co po a e go e nance and sus ainabili y. In o de o help s akeholde s, policymake s,
and egula o s ad ance e ec i e disclosu e amewo ks and p omo e sus ainable business
p ac ices, his esea ch aims o shed ligh on whe he ESG disclosu es in Kuwai i i ms
mi iga e o exace ba e ea nings managemen p ac ices.
Idea: The s udy in es iga es how ESG disclosu e a ec s Ea nings Managemen p ac ices in
Kuwai , a con ex ha migh di e om mo e de eloped economies.
1 Co esponding au ho : Ecole Supé ieu e de Comme ce, S ax Uni e si y, P.O. Box: 3018
S ax, Tunisia, Tel: +216-98-667762, email add esses: masmoudisana@yahoo. /
[email protected] . n
Funding: No unding
Acknowledgmen : we ex end ou deepes g a i ude o he e iewe s o hei insigh ul
commen s and cons uc i e eedback, which signi ican ly imp o ed he quali y o his
manusc ip . Thei expe ise and dedica ion o he pee - e iew p ocess a e in aluable o he
ad ancemen o scien i ic knowledge in ou ield. We also hank he gues edi o s o hei
guidance and suppo h oughou he e iew and publica ion p ocess. Thei expe ise and
commi men o main aining he in eg i y o schola ly wo k ha e been ins umen al in
b inging his pape o ui ion.
E alua ing he e ec s o ESG epo ing
on ea nings managemen in an eme ging economy
508 Vol. 23, No. 3
Da a: The da a we e collec ed om 37 Kuwai i companies lis ed on he Kuwai S ock
Exchange (KSE) o e a i e-yea pe iod, spanning 2017 o 2021, gi ing 185 company-yea
obse a ions.
Tools: The esea ch used linea eg ession o de e mine he ela ionship be ween ESG
disclosu e and EM.
Findings: The esul s indica e a signi ican nega i e co ela ion be ween ESG disclosu e and
EM. This sugges s ha g ea e disclosu e o ESG in o ma ion by companies is associa ed
wi h a educed likelihood o engaging in EM p ac ices.
Con ibu ion: The s udy con ibu es o he exis ing body o knowledge by expanding he
li e a u e on he ela ionship be ween ESG disclosu e and EM in he Kuwai i con ex . I
should be highligh ed ha mos p e ious s udies ha e mainly ocused on he en i onmen al
aspec o ESG, whe eas his s udy explo es he impac o ESG in i s en i e y on EM.
Keywo ds: Co po a e Social Responsibili y, En i onmen al, Social and Go e nance,
Ea nings Managemen , Kuwai .
JEL Codes: M14, M4.
1. In oduc ion
In ecen yea s, he global business landscape has unde gone a pa adigm shi
owa ds g ea e anspa ency, accoun abili y and sus ainabili y. A he hea o his
ans o ma ion is he inc eased disclosu e o en i onmen al, social and go e nance
(ESG) in o ma ion by companies wo ldwide. This end e lec s he g owing
ecogni ion by s akeholde s ha a company's success is no app op ia e o measu e
solely by i s inancial pe o mance, bu also by i s impac on he en i onmen , socie y
and go e nance s uc u es. As a esul , academics, p ac i ione s, in es o s and
egula o s ha e sough o unde s and he implica ions o ESG disclosu e o a ious
aspec s o co po a e beha io and pe o mance.
The p ac ice o ea nings managemen (EM), de ined as he manipula ion o inancial
s a emen s o achie e speci ic inancial objec i es, has long been a ma e o conce n
in he ield o co po a e go e nance and inancial epo ing. While some deg ee o
EM may be legi ima e and necessa y o smoo h luc ua ions in ea nings, excessi e
o audulen manipula ion can e ode in es o con idence, dis o ma ke e iciency
and unde mine he eliabili y o inancial s a emen s. In his con ex , he in e sec ion
be ween ESG disclosu e and EM has become a subjec o conside able in e es and
sc u iny.
A obus body o li e a u e has explo ed he ela ionship be ween ESG disclosu e
and co po a e inancial pe o mance, wi h a ocus on how ESG conside a ions
in luence i m alue, isk managemen , and access o capi al. S udies by Eccles and
Accoun ing and Managemen In o ma ion Sys ems
Vol. 23, No. 3 509
Se a eim (2013) and Cla k e al. (2019) ha e highligh ed he posi i e co ela ion
be ween s ong ESG pe o mance and inancial ou pe o mance, sugges ing ha
companies ha p io i ize sus ainabili y and e hical business p ac ices end o
gene a e supe io long- e m e u ns o in es o s. Mo eo e , esea ch by G ewal and
Se a eim (2019) and Khan e al. (2020) has unde sco ed he ole o ESG disclosu e
in mi iga ing in o ma ion asymme y and educing he cos o capi al, as in es o s
ewa d i ms wi h anspa en and eliable ESG epo ing wi h lowe capi al cos s.
Howe e , he ela ionship be ween ESG disclosu e and ea nings managemen
emains a ela i ely unde explo ed a ea, pa icula ly in he con ex o eme ging
ma ke s such as Kuwai . While he li e a u e on ea nings managemen is ex ensi e,
much o i has ocused on adi ional inancial me ics and egula o y en i onmen s
in de eloped economies. Limi ed empi ical e idence exis s on how ESG disclosu e
p ac ices a ec he incen i es, mechanisms, and consequences o ea nings
managemen in he unique socio-economic and egula o y con ex o Kuwai .
Gi en he inc easing emphasis on ESG conside a ions in co po a e decision-making
and in es men analysis, unde s anding he dynamics o ESG disclosu e and i s
implica ions o ea nings managemen in Kuwai is o pa amoun impo ance.
Kuwai , as a p ominen playe in he Gul Coope a ion Council (GCC) egion, is
unde going signi ican economic di e si ica ion e o s and egula o y e o ms
aimed a enhancing co po a e go e nance, sus ainabili y, and anspa ency.
The e o e, he Kuwai i con ex p o ides special oppo uni y o ou s udy o unea h
no el unde s andings on he connec ion be ween ESG disclosu e and ea nings
managemen . Fi s , in con as o mo e ma u e economies, Kuwai is an eme ging
economy wi h unique ma ke ea u es, legal sys ems, and cul u al alues. An in-
dep h unde s anding o how businesses manage hese dynamics in he ace o
changing ma ke condi ions and egula o y amewo ks can inc eases by examining
EM and ESG disclosu e p ac ices in his con ex . Secondly, as compa ison o
p e iously esea ched egions, he Kuwai i en i onmen o e s a la gely unexplo ed
esea ch a ea ela ing ESG epo ing and EM.
We close his gap in he li e a u e by ocusing ou in es iga ion on Kuwai and
p o ide insigh ul in o ma ion abou he pa icula di icul ies, mo i a o s, and
esul s ela ed o ESG disclosu e and EM p ac ices in an eme ging ma ke con ex .
In addi ion, Kuwai 's dis inc socioeconomic en i onmen may ha e an impac on
businesses' ESG epo ing p ac ices and inclina ion owa d ea nings managemen .
In es iga ing hese con ex ual a iables can p o ide new ligh on how businesses in
Kuwai 's esou ce-dependen economy s ike a comp omise be ween sus ainabili y
conce ns and inancial success goals. Mo eo e , Kuwai o e s a special se ing in
which o assess how ESG epo ing a ec s p o i s managemen because o a numbe
o unique cha ac e is ics. Kuwai is a high-income economy ha depends hea ily on
oil. As such, he coun y's esou ce iches and he need o sus ainable g ow h and
di e si ica ion ha e a signi ican impac on Kuwai 's inancial and co po a e
E alua ing he e ec s o ESG epo ing
on ea nings managemen in an eme ging economy
510 Vol. 23, No. 3
policies. A egula o y amewo k ha is changing o con o m o global no ms while
p ese ing unique egional ea u es shaped by he coun y’s sociopoli ical con ex
go e ns he co po a e sec o in Kuwai . Fu he mo e, Kuwai i socie y's cul u al
emphasis on epu a ion and social esponsibili y can ha e a signi ican impac on
how co po a ions conduc ESG ac i i ies and inancial epo ing. In conclusion, ou
emphasis on he Kuwai i con ex o e s a chance o p oduce esh insigh s and
expand comp ehension o he in ica e in e ac ions be ween EM and ESG disclosu e
in he unique socio-economic and egula o y amewo k o an eme ging ma ke ,
ul ima ely enhancing academic discou se and educa ing p ac i ione s and
policymake s alike.
Agains his backd op, in es iga ing he impac o ESG disclosu e on ea nings
managemen p ac ices in Kuwai can p o ide aluable insigh s o policymake s,
egula o s, in es o s, and co po a e leade s s i ing o os e a cul u e o
accoun abili y, in eg i y, and long- e m alue c ea ion in he coun y's business
landscape.
The e o e, his s udy seeks o add ess he ollowing esea ch ques ion: How does he
disclosu e o En i onmen al, Social, and Go e nance in o ma ion a ec he p ac ice
o ea nings managemen in he Kuwai i con ex ?. By explo ing his ques ion, we aim
o con ibu e o he exis ing li e a u e on co po a e go e nance, inancial epo ing,
and sus ainabili y, while o e ing p ac ical implica ions o s akeholde s in ol ed in
p omo ing anspa ency, accoun abili y, and esponsible business p ac ices in
Kuwai and beyond.
In his s udy, we will del e in o he dynamics o ESG epo ing and i s po en ial
in luence on EM p ac ices in Kuwai . Th ough empi ical analysis and igo ous
in es iga ion, we aim o shed ligh on he ela ionship be ween hese wo c i ical
ace s o co po a e beha io . Ou indings will con ibu e o a deepe unde s anding
o he ole ha ESG disclosu e plays in shaping inancial in eg i y and anspa ency
wi hin Kuwai , as well as he b oade implica ions o eme ging economies
na iga ing he pa h o sus ainabili y and esponsible co po a e go e nance.
Mo eo e , ou esea ch ills a acuum in he li e a u e by ocusing on a de eloping
economy ha has no go en as much a en ion: he ela ionship be ween accoun ing
and sus ainabili y. We manually ga he ed ESG- ela ed da a om yea ly epo s.
Thus, ou wo k c ea es a da ase ha was p e iously una ailable in he li e a u e.
Fu he mo e, ou esea ch o e s a ho ough g asp o how, speci ically in he Kuwai i
con ex , he inco po a ion o mo al p inciples in o business plans s eng hens he
amewo k o inancial epo ing and go e nance.
The emainde o his s udy is s uc u ed as ollows. Sec ion 2 ou lines he heo e ical
backg ound, elucida ing he co e concep s and models ha guide ou esea ch and
p esen s he de elopmen o ou hypo heses and an in-dep h e iew o he li e a u e
Accoun ing and Managemen In o ma ion Sys ems
Vol. 23, No. 3 511
e iew, posi ioning ou wo k wi hin he exis ing academic discou se. In sec ion 3,
we de ail ou esea ch me hodology and sample selec ion, elucida ing ou da a
collec ion p ocess. Finally, Sec ion 4 encapsula es ou s udy wi h a concise summa y
o key ou comes, ecogni ion o limi a ions, and an ou line o u u e esea ch
di ec ions.
2. Li e a u e e iew and hypo hesis de elopmen
The ela ionship be ween Co po a e Social Responsibili y (CSR) and
En i onmen al, Social, and Go e nance (ESG) in e wines deeply, e lec ing a
nuanced app oach o sus ainable business p ac ices and e hical in es men .
Acco ding o au ho s such as Ca oll (1991) and Dahls ud (2008), CSR encompasses
olun a y ac ions aken by companies o add ess socie al and en i onmen al
conce ns beyond legal obliga ions, o en e lec ing a commi men o e hical conduc
and s akeholde alue c ea ion. These ini ia i es can ange om philan h opy and
communi y engagemen o en i onmen al s ewa dship and e hical labo p ac ices.
On he o he hand, ESG, as discussed by au ho s like Eccles e al. (2012) and
Sus ainaly ics (2020), ocuses speci ically on e alua ing a company's pe o mance
in key a eas including en i onmen al impac , social esponsibili y, and co po a e
go e nance. Th ough ESG analysis, in es o s seek o unde s and he long- e m
sus ainabili y and e hical impac o hei in es men s, ecognizing ha ac o s such
as ca bon emissions, labo p ac ices, and boa d di e si y can a ec inancial
pe o mance and isk managemen . In ecen yea s, au ho s such as Mackey e al.
(2017) and Jensen (2020) ha e highligh ed he in eg a ion o CSR ini ia i es in o
ESG s a egies, emphasizing how CSR ac i i ies con ibu e o a company's o e all
ESG pe o mance. This in eg a ion no only aligns wi h e hical in es men p inciples
bu also enhances a company's epu a ion, mi iga es isks, and os e s long- e m
alue c ea ion. Thus, he ela ionship be ween CSR and ESG e lec s a symbio ic
pa ne ship, whe e CSR ini ia i es con ibu e o ESG pe o mance, and ESG
conside a ions in o m and guide CSR s a egies, ul ima ely d i ing sus ainable
business p ac ices and esponsible in es men decisions.
A my iad o s udies ha e examined he ela ionship be ween CSR p ac ices and
ea nings managemen . One impo an pe spec i e is ha CSR can ac as a
mechanism o educe ea nings managemen . Fi ms wi h s onge CSR commi men s
may ace highe sc u iny and a e mo i a ed o main ain anspa ency and c edibili y.
Fo ins ance, Cheng e al. (2014) ound ha i ms wi h high CSR sco es engage in
less ea nings managemen .
Wha is mo e, p io s udies o he li e a u e ha e p oduced mixed indings, which
ela es o a se o ac o s, including he heo e ical amewo k, he con ex o he
s udy, and he alidi y o he da a ha migh a ec economic, s a is ical, and poli ical
inciden s. The e a e ac ually signi ican di e ences be ween coun ies' CSR
E alua ing he e ec s o ESG epo ing
on ea nings managemen in an eme ging economy
512 Vol. 23, No. 3
legisla ion since hese egula ions may be op ional o manda o y, depending on he
coun y's policies on socially esponsible du ies. Fo ins ance, he Co po a e
Sus ainabili y Repo ing Di ec i e (CSRD, 2023) mode nizes and s eng hens he
ules conce ning he social and en i onmen al in o ma ion ha companies ha e o
epo . A b oade se o la ge companies, as well as lis ed SMEs, will now be equi ed
o epo on sus ainabili y. Some non-EU companies will also ha e o epo i hey
gene a e o e EUR 150 million on he EU ma ke .
Simila ly, only a ew go e nmen s, including China, India, and Indonesia, ha e
made i manda o y o companies o implemen CSR p og ams o ope a e in
sus ainably manne (Lin, 2020). Addi ionally, as was al eady men ioned, he
dispa i ies in laws and egula ions among coun ies had a pa in he con adic o y
indings o ea lie s udies, which ce ainly a ec ed he ou comes o he analysis.
Acco ding o Ama and Chak oun (2018), i is less expec ed ha CSR would ha e a
signi ican impac on egula ing he manage 's beha io and, as a esul , ha e an
impac on ea nings quali y in a si ua ion whe e egula ions a e olun a y o pu sue.
An empi ical analysis by G ougiou e al. (2014) in es iga es he bi-di ec ional
ela ionship be ween CSR and EM in he US banking sec o using a sample o 116
lis ed U.S. comme cial banks du ing he i e-yea pe iod (2003–2007). The indings
e eal ha he e is a posi i e co ela ion be ween CSR and EM because US bank
execu i es p e e o inc ease hei in ol emen in CSR ini ia i es when hey manage
ea nings. In addi ion, he CSR-EM ela ionship is no bi-di ec ional since adop ing
CSR does no de e mine EM ac ics.
The s udy o Cho and Chun (2016) aims o explo e whe he co po a e go e nance
mechanisms mode a e he ela ionship be ween CSR and eal-ac i i y ea nings
managemen in a Ko ean se ing. The au ho s used 1,432 i m-yea obse a ions o
i ms lis ed on he Ko ea S ock Exchange o he 2005–2010 pe iod. The au ho s
d aw he conclusion ha , om he s andpoin o he s akeholde s, since he
inco po a ion o CSR ini ia i es in o he business ope a ions o he i ms s esses a
a o able ela ionship wi h s akeholde s; eal-ac i i y ea nings managemen will be
es ic ed. The indings also sugges ha s ong co po a e go e nance in ensi ies he
nega i e associa ion be ween CSR and eal-ac i i y ea nings managemen , esul ing
in mo e accu a e and eliable inancial eco ds, s onge business pe sis ence, and
p o i able long- e m in es men s.
The bidi ec ional link be ween ESG pe o mance and EM was he subjec o ecen
empi ical e idence om Ge many by Vel e (2019). The sample o his s udy
consis s o 548 i m-yea obse a ions o non- inancial companies lis ed on he
Ge man P ime S anda d om 2010 o 2017. The indings e eals ha ESG
pe o mance has a nega i e impac on acc uals EM bu no eal EM, in acco dance
wi h s akeholde heo y. Mo eo e , by spli ing he h ee ESG pe o mance
Accoun ing and Managemen In o ma ion Sys ems
Vol. 23, No. 3 513
a iables, go e nance pe o mance has a mo e nega i e in luence on acc uals han
social and en i onmen al pe o mance.
Ama and Chak oun (2018) conduc ed an empi ical s udy o de e mine i CSR
a ec s EM in a F ench con ex . The s udy includes 595 i m-yea obse a ions om
119 non- inancial companies included in he CAC All T adable index o he yea s
2010 o 2014. To assess he deg ee o EM in he chosen sample, he au ho s
employed he disc e iona y acc uals model by e e ing o Dechow e al. (1995). The
CSR sco e, which includes ela ed i ems o social ac ions, has been buil using a se
o socie al dimensions p o ided by ISO 26000 s anda ds, including co po a e
go e nance, human igh s, labo ela ions and condi ions, en i onmen , ai
p ac ices, consume issues, and communi y in ol emen . The au ho s ind a
signi ican and nega i e ela ionship be ween he key a iables wi hin he amewo k
o signaling and s akeholde heo ies, which sugges s ha i ms wi h mo e CSR
commi men , engage in less ea nings managemen .
Recen wo k by Palacios-Manzano e al. (2021) looked in o he impac o i ms' CSR
o ien a ion on epo ing incen i es in e ms o ea nings managemen ac i i ies. The
s udy concen a ed on he Spanish con ex by selec ing he op 100 publicly lis ed
Spanish companies based on he MERCO index om 2011 o 2015, wi h 452 i m-
yea obse a ions. Acco ding o he au ho s' indings, in ol emen in CSR
ope a ions lessens he chance o u ning o une hical ac ics, no ably ea nings con ol,
which highligh s a nega i e ela ionship be ween EM and CSR.
The empi ical esul s o his ela ionship, as was p e iously highligh ed, exhibi
con lic ing indings. Indeed, he majo i y o ea lie s udies ha e ocused on using
disc e iona y acc uals o es ima e he le el o ea nings managemen wi hin a speci ic
sample.
In he ligh o s akeholde and legi imacy pe spec i es, se e al ea lie s udies
highligh ed a nega i e ela ionship be ween ea nings managemen and he deg ee o
sa egua ding he company’s sus ainable g ow h h ough epo ing ini ia i es (Hong
& Ande sen, 2011; Kim e al., 2012; Cho & Chun, 2016; Ama & Chak oun, 2018;
Ge ged e al., 2020; Kumala & Si ega , 2020; Palacios-Manzano e al., 2021). The
nega i e ela ionship e lec s he ac ha companies ha do no sa is y communi y
expec a ions will ind i challenging o legi imize hei ac ions and will, as a esul ,
deal wi h social and inancial consequences such as ha ing hei business ope a ions
es ic ed and wi nessing a dec ease in demand o hei p oduc s and se ices
(Deegan, 2019). Howe e , s akeholde and legi imacy heo ies a e bo h conside ed
o ha e hei ounda ions in poli ical economy heo y (Deegan, 2002).
Acco ding o he legi imacy heo y, companies adap hei ope a ions o
o ganiza ional o ms o ma ch wha he ou side en i onmen pe cei es as legi ima e.
This sugges s ha manage s engaged in disclosing sus ainable in o ma ion a e less
E alua ing he e ec s o ESG epo ing
on ea nings managemen in an eme ging economy
514 Vol. 23, No. 3
likely o ope a e une hically. In o he wo ds, i a company es ablishes a social
con ac be ween i s s akeholde s, i will d i e managemen o sa egua d he
company's su i al and ensu e he s abili y o i s ope a ions om a legi imacy
s andpoin . Fu he mo e, based on a s akeholde backg ound, hi d pa ies expec
i ms o se e hei needs, which imp o es bo h hei epu a ion and u u e
pe o mance. Acco ding o Vel e (2019), in addi ion o sha eholde s and c edi o s, a
company o en has obliga ions o o he in e es ed pa ies wi h non- inancial in e es s.
Addi ionally, o show ha hey a e sa is ying s akeholde s' expec a ions, manage s
a e mo i a ed o p o ide speci ic s akeholde g oups wi h in o ma ion abou hei
di e en ini ia i es and p og ams (Deegan, 2002).
S akeholde heo y p edic s ha companies will disclose mo e insigh ul inancial
and non- inancial in o ma ion, esul ing in be e CSR and inancial pe o mance
(Vel e, 2017). This e idence, unde a nega i e CSR-EM ela ionship, can be
explained by he p e e ence o socially esponsible companies o s able
ela ionships wi h hei s akeholde s (Vel e, 2019). On he o he hand, a ious
s udies ha e shown a posi i e CSR-EM associa ion. Fo ins ance, manage s
manipula e ea nings in a way ha bo h mee s s akeholde expec a ions and gi es
hem he abili y o deal wi h s akeholde ac i ism and igilance while ope a ing
unde a ious cons ain s imposed by s akeholde s' compe ing in e es s (Ama &
Chak oun, 2018). Addi ionally, many academics ha e ecen ly examined he
connec ion be ween ea nings managemen and non- inancial o ganiza ions'
pe o mance, including sus ainabili y, social esponsibili y, and en i onmen al,
social, and go e nance (ESG) pe o mance (Chouaibi & Zoua i 2022; Kha ib e al.
2023; Vel e 2019). Acco ding o he li e a u e, businesses ha a e mo e de o ed o
upholding hei mo al obliga ions a e less p one o use o ce ul ea nings managemen
echniques. Acco ding o Ehsan e al. (2020), di e en app oaches o measu ing
social esponsibili y and ea nings managemen ha e led o inconsis en esul s in he
li e a u e ha looked a he ela ionship be ween p o i managemen p ac ices and
co po a e social esponsibili y. Ea nings managemen is one o he beha io s ha
unde mines s akeholde con idence in company epo s. The social esponsibili y
app oach has he po en ial o make ea nings managemen and disc e iona y acc ual-
based p ocesses mo e manageable.
As pe Vel e's (2019) indings, acc ual-based ea nings managemen su e s om he
ESG p ac ices, whe eas REM is no a ec ed. Fu he mo e, Gaio e al. (2022)
alida ed his pa e n and es ablished a nega i e co ela ion be ween p o i abili y
managemen and social pe o mance, as he mos e hically conscious businesses end
o exhibi highe le els o social esponsibili y. Howe e , Mo a is and an Egmond
(2018) con ended ha he e is no a connec ion be ween managing p o i abili y and
engaging in CSR. Acco ding o Gonçal es e al. (2021), manage s who demons a e
high le els o co po a e social esponsibili y (CSR) compliance abs ain om ac ions
ha could nega i ely a ec p o i s due o hei g ea e mo al belie s. Mo eo e ,
Accoun ing and Managemen In o ma ion Sys ems
Vol. 23, No. 3 521
Ac onym
Va iable
name
Type Explana ion
Sou ce
o da a
SIZE
Fi m’s size
Con ol
a iable
Measu ed by he na u al
loga i hm o o al asse s
Da aS eam
LEV
Le e age
Con ol
a iable
To al deb scaled by o al asse s
Da aS eam
GROWT
H
Company
g ow h
Con ol
a iable
Change in sales pe cen age (%)
Da aS eam
LOSS
Company
loss
Con ol
a iable
An indica o a iable ha shows
1 i he company is ne income
be o e ex ao dina y i ems is
nega i e and 0 o he wise.
Da aS eam
BIG4
BIG 4
Audi Fi m
Con ol
a iable
Type o audi i m. I he
company is audi ed by one o
he Big Fou audi i ms, an
indica o a iable will ake he
alue 1, o he wise i will ake 0
Da aS eam
3.5 Empi ical model
A eg ession model mus be used in quan i a i e esea ch o de e mine he
ela ionship be ween he employed a iables. In line wi h ea lie s udies, we es he
ex en o which sus ainabili y disclosu es (ESG) can a ec he le el o EM by using
he acc ual ea nings managemen as a dependen a iable in ou eg ession model
(Belgacem & Om i, 2015; Ge ged e al., 2020). The la e model he e o e con ains
i e a iables: ESGD, SIZE, LEV, GROWTH, LOSS and BIG4. We expec a
posi i e connec ion be ween ESG and EM p ac ices om an agency
(s akeholde /legi imacy) pe spec i e. Howe e , o es ou main hypo hesis, we
cons uc he ollowing eg ession model (equa ion 3):
𝐷𝐷𝐷𝐷𝑖𝑖𝑖𝑖 = 𝛼𝛼0 + 𝛽𝛽1𝐸𝐸𝐸𝐸𝐸𝐸𝐷𝐷𝑖𝑖𝑖𝑖 + 𝛽𝛽2𝐸𝐸𝑆𝑆𝑆𝑆𝐸𝐸𝑖𝑖𝑖𝑖 + 𝛽𝛽3𝐿𝐿𝐸𝐸𝐿𝐿𝑖𝑖𝑖𝑖 + 𝛽𝛽4𝐸𝐸𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝑖𝑖𝑖𝑖 + 𝛽𝛽5𝐿𝐿𝐺𝐺𝐸𝐸𝐸𝐸𝑖𝑖𝑖𝑖 +
𝛽𝛽6𝐵𝐵𝑆𝑆𝐸𝐸4𝑖𝑖𝑖𝑖 + 𝛽𝛽7𝑆𝑆𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝐼𝐼 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒𝐼𝐼𝐼𝐼 + 𝛽𝛽8𝑌𝑌𝑓𝑓𝑌𝑌𝐼𝐼 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝐼𝐼 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒𝐼𝐼𝐼𝐼 + 𝜀𝜀𝑖𝑖𝑖𝑖 (3)
whe e:
DA = disc e iona y acc uals;
ESGD = he o al en i onmen al, social, and go e nance disclosu e sco e;
SIZE = i m size, measu ed as he na u e loga i hm o o al asse s;
LEV = deb a io, measu ed as he o al deb scaled by o al asse s;
GROWTH = i m’s pe cen age change in sales;
LOSS = company loss (indica o a iable) and
BIG4= he i m is audi ed by one o he Big4 audi i ms.
Following p e ious s udies, we in oduced indus y and yea ixed e ec s, alongside
ou independen a iable and con ol a iables, o check o endogenei y issues (Al-
Shae , 2020; Al-Shae & Hussainey, 2022; Rezaee e al., 2020; Wu & Zhou, 2022).
E alua ing he e ec s o ESG epo ing
on ea nings managemen in an eme ging economy
522 Vol. 23, No. 3
In o de o assess which modeling s a egy would be bes o ou esea ch, we s a ed
by u ilizing a Hausman es o compa e ixed-e ec s and andom-e ec s models.
The andom-e ec s es ima o was be e app op ia e o ou in es iga ion, acco ding
o he Hausman es esul s, which showed a p e e ence o he andom-e ec s model
o e he ixed-e ec s model. To look o au oco ela ion in he panel da a, we nex
an he Woold idge es . The Woold idge es s a is ic e i ies ha he model's
esiduals lacked conside able au oco ela ion.
In o de o in es iga e he exis ence o he e oskedas ici y, we an he B eusch-Pagan
es . The es indings show ha he e o e ms ha e high he e oskedas ici y. Ou
solu ion was o use he easible gene alized leas squa es (FGLS) app oach. Ou
hypo hesis ha o ganiza ions wi h g ea e ESG disclosu e a es a e less likely o
engage in ea nings managemen ac ions was obus ly es ed using he FGLS model,
which co ec s o he e oskedas ici y and possibly se ial co ela ion. Ou indings
abou he connec ion be ween ESG disclosu e and ea nings managemen we e
deemed eliable hanks o his esea ch echnique.
4. Da a analysis and esul s
4.1 Desc ip i e s a is ics
Table 5 o e s an o e iew o he desc ip i e s a is ics conce ning ou a iables.
Acco ding o ou da a se , i ms end o engage in mino acc ual manipula ion. The
mean alue o DA is -0.001, wi h a ange o -0.195 o a maximum o 0.115. This
indica es ha he e is limi ed a iabili y o da a poin s.
As o ou independen a iable, he "ESG disclosu e sco e," i spans a ange om
38% o 100%, wi h an a e age alue o 70%. I also highligh s a signi ican di e si y
in ESG disclosu e sco es wi hin ou sample, wi h a wide ange om a minimum o
0.38 o a maximum o one.
Rega ding he con ol a iables, he a e age i m size s ands a 12. Fu he mo e, o e
he s udy pe iod, 21% o he sample epo ed nega i e ne income. In addi ion,
a ound 28% o he included i ms a e deb - inanced. Mo eo e , he a e age a e o
g ow h o he company is app oxima ely 4%. Las ly, la ge audi i ms, on a e age,
conduc audi s o 73% o he companies in ou sample.
Table 5. Desc ip i e s a is ics
Va iable
Obs
Min
Max
Mean
S d de
DA
185
-0.195
0.115
-0.001
0.057
ESGD
185
0.38
1
0.704
0.121
SIZE
185
8.829
15.387
12.004
1.365
LOSS
185
0
1
0.211
0.409
Accoun ing and Managemen In o ma ion Sys ems
Vol. 23, No. 3 523
Va iable
Obs
Min
Max
Mean
S d de
LEV
185
0
0.726
0.271
0.196
GROWTH
185
-0.752
1.014
0.033
0.317
BIG4
185
0
1
0.73
0.445
No e: All a iables a e de ined in Table 3
4.2 Pai wise co ela ion ma ix
Table 6 p esen s he Pea son coe icien s' esul s, assessing mul icollinea i y among
ou explana o y a iables. The analysis e eals ha all a iables exhibi co ela ions
below he commonly accep ed h eshold o 0.7 (Kenneddy, 2003). As a esul , he e
is no indica ion o p oblema ic mul icollinea i y among ou a iables. Addi ionally,
when applying he a iance in la ion ac o (VIF) o conduc a seconda y check o
mul icollinea i y, he indings in Table 6 indica e ha he mean VIF is 1.39, wi h he
highes alue being 1.93, bo h well below he c i ical alue o 10. This con i ms he
absence o mul icollinea i y in ou da ase .
Table 6. Pai wise co ela ion ma ix
Va iables
DA
ESGD
SIZE
LOSS
LEV
GROWTH
BIG4
DA
1.000
ESGD
-0.212*
1.000
SIZE
-0.069
0.550*
1.000
LOSS
-0.207*
-0.328*
-0.248*
1.000
LEV
0.143*
0.040
0.371*
0.114
1.000
GROWTH
-0.070
0.027
0.148*
-0.304*
0.083
1.000
BIG4
-0.034
0.091
0.217*
0.016
0.013
0.010
1.000
No e: *** p<0.01, ** p<0.05, * p<0.1
Table 7. Va iance in la ion ac o
Va iables
VIF
1/VIF
ESGD
1.564
0.639
SIZE
1.934
0.517
LOSS
1.313
0.762
LEV
1.311
0.763
GROWTH
1.156
0.865
BIG4
1.062
0.941
Mean VIF
1.39
4.3 Empi ical esul s
Wi hin his in es iga ion, he ime- easible Gene alized Leas Squa es (FGLS)
eg ession app oach se ed as he concluding s ep o assess he associa ion be ween
E alua ing he e ec s o ESG epo ing
on ea nings managemen in an eme ging economy
524 Vol. 23, No. 3
ESG and EM. Ou comes de i ed om he Hausman es sugges ha he u iliza ion
o he andom-e ec s model is a p e e able choice when compa ed o he ixed-
e ec s model. Table 8 p esen s he indings o he mul i a ia e panel eg ession
model. Ou model exhibi s s a is ical signi icance a he 1% le el (P = 0.000), wi h
an R² o 44.2%.
A a 1% signi icance le el, he eg ession esul s e eal a no ewo hy and nega i e
associa ion be ween DA and ESG Disclosu e. This illus a es how well i explains
and o ecas s he esul s. Ou eg ession esul s show a s a is ically signi ican
nega i e connec ion be ween DA and ESGD a he 1% signi icance le el. This esul
implies ha esponsible Kuwai i i ms a e less likely o engage in EM h ough DA
wi hin ou selec ed sample. This sugges s ha businesses ha suppo sus ainable
business p ac ices ypically engage wi h hei s akeholde s in an e hical manne ,
p e en ing dishones beha io in he p ocess. Consequen ly, we in e ha socially
esponsible Kuwai i companies a e less inclined o engage in ea nings managemen
h ough disc e iona y acc uals, sugges ing ha i ms commi ed o sus ainable
business p ac ices end o exhibi esponsible s akeholde beha io , he eby
discou aging manage ial disc e ion. This ad e se ela ionship has been subs an ia ed
by a ious p io s udies (Ama & Chak oun, 2018; Ga cía‐Sánchez e al., 2020;
Ge ged e al., 2020; Ge ged e al., 2021; Kumala & Si ega , 2020; Palacios-Manzano
e al., 2021), whe eas i has no been suppo ed by o he s (Ga a a, 2021; Jo daan e
al., 2018; Mu akin e al., 2015; P io e al., 2008). Consequen ly, d awing om
s akeholde and legi imacy heo ies, ou hypo hesis inds empi ical suppo .
Table 8. Reg ession esul s
Disc e iona y acc uals
Va iables
Coe
S E
P- alue
Sig
ESGD
-0.094
0.026
0.000
***
SIZE
-0.003
0.003
0.398
LOSS
-0.035
0.006
0.000
***
LEV
-0.032
0.017
0.060
*
GROWTH
-0.018
0.007
0.013
**
BIG4
-0.005
0.006
0.411
*
Numbe o obs
Indus y ixed
e ec s
Yea ixed e ec s
R²
P ob > chi2
185
Yes
Yes
44.2%
0.000
No e: *** p<0.01, ** p<0.05, * p<0.1
Rega ding con ol a iables, he indings sugges ha le e age, company g ow h,
and company losses exe a no ewo hy in luence on he magni ude o acc uals
Accoun ing and Managemen In o ma ion Sys ems
Vol. 23, No. 3 525
wi hin ou da ase . We obse ed a s a is ically signi ican , nega i e associa ion
be ween losses and DA a he 1% signi icance le el. This sugges s ha he e may be
limi ed a enues o ea nings managemen when companies incu losses due o
manage ial cons ain s in accessing cash lows. This inding is inconsis en wi h
p e ious s udies (Mu akin e al., 2015).
We obse e a s a is ically signi ican , nega i e co ela ion be ween le e age and DA
a he 10% signi icance le el. Companies could a ibu e his o adop ing deb
s a egies ha accu a ely e lec hei inancial s anding, aimed a educing he cos
o inancing, as sugges ed by p io esea ch (Ghosh & Moon, 2010; Kumala &
Si ega , 2020). These inding con as s wi h a ious s udies ha p opose deb -
inanced i ms end o engage in ea nings managemen h ough disc e iona y
acc uals o mee hei deb co enan s (Ama & Chak oun, 2018; Ga cía‐Sánchez e
al., 2020; Palacios-Manzano e al., 2021).
Mo eo e , he indings e eal a s a is ically signi ican , nega i e associa ion a he
5% signi icance le el be ween i ms cha ac e ized by g ow h and disc e iona y
acc uals. This ou come aligns wi h he a gumen made by Kim e al. (2012), which
sugges s ha socially esponsible i ms end o exhibi highe g ow h po en ial and,
as a esul , achie e be e inancial pe o mance, cha ac e ized by educed ea nings
managemen .
Las ly, we ound ha , wi hin ou sample, majo audi i ms a he 10% signi icance
le el nega i ely and signi ican ly a ec DA. This ou come elucida es he company's
obus business ne wo k, which may p o ide i wi h compe i i e bene i s (Cahyono
e al., 2023). La ge audi i ms unques ionably ha e supe io acc ual quali y because
o hei p o iciency in iden i ying DA (Ken e al., 2010).
5. Conclusion
This s udy endea o s o in es iga e he connec ion be ween sus ainabili y epo ing
and he acc uals-ea nings managemen s a egy, wi h a ocus on a less de eloped
s ock ma ke , namely he Kuwai S ock Exchange. Howe e , we employed a
combina ion o uni a ia e, bi a ia e, and mul i a ia e analyses o ga he obus
e idence pe aining o he p ima y ela ionship unde sc u iny. The sample o his
s udy encompasses 37 publicly lis ed Kuwai i companies, comp ising 185 i m-yea
obse a ions spanning om 2017 o 2021.
The eg ession indings demons a e a no able and ad e se co ela ion be ween
sus ainabili y epo ing and ea nings managemen p ac ices. This sugges s ha he
managemen o socially esponsible Kuwai i companies p io i izes building s ong,
mu ually bene icial ela ionships wi h hei s akeholde s a he han engaging in
decep i e p ac ices.
E alua ing he e ec s o ESG epo ing
on ea nings managemen in an eme ging economy
526 Vol. 23, No. 3
Ou esea ch makes a aluable addi ion o he cu en body o li e a u e by assessing
how sus ainabili y- epo ing p ac ices in luence ea nings managemen . Fu he mo e,
o he bes o ou knowledge, only wo p io s udies (Ge ged e al., 2020; Ge ged e
al., 2021) ha e examined he en i onmen al dimension in he con ex o Kuwai ,
wi hou a speci ic ocus on social o go e nance aspec s. This has spu ed ou
in e es in in es iga ing he combined impac o all hese ac o s. Howe e , by
ex ending he esea ch on he connec ion be ween EM and ESG disclosu e in he
Kuwai i con ex , he s udy adds o he body o knowledge al eady in exis ence. I
should be highligh ed ha while his s udy examines he e ec s o ESG o e all on
EM, he majo i y o ea lie esea ch has mos ly concen a ed on he en i onmen al
pa o ESG.
Ou esea ch o e s signi ican p ac ical insigh s wi h ele ance o in es o s,
companies, and policymake s. Fi s ly, i s ands o bols e in es o con idence,
enabling hem o make mo e in o med and ui ul in es men choices. Secondly,
conside ing he g owing demand o sus ainabili y epo ing om s akeholde s,
policymake s should aim o p og essi ely s anda dize sus ainabili y p ac ices,
p omo ing he in eg a ion o social esponsibili y in o Kuwai i cul u e, aligning wi h
he 'New Kuwai 2035' ision. Las ly, his endea o may acili a e companies in
a ac ing mo e sha eholde s ha a e disce ning, enhancing hei public image, and
inspi ing a g ea e commi men o social esponsibili y by in eg a ing sus ainabili y
epo ing in o hei co e business ope a ions.
The empi ical indings o ou s udy necessi a e a cau ious in e p e a ion, and i is
essen ial o acknowledge se e al limi a ions ha could pa e he way o u u e
esea ch di ec ions. Fi s ly, he de elopmen o he checklis o i ems may no be
uni e sally applicable o all indus ies, pa icula ly he se ice sec o , which may no
p io i ize en i onmen al epo ing o he same ex en . Secondly, he eliance on a
non- andom sampling me hod, p omp ed by he limi ed numbe o companies
o e ing ESG in o ma ion in hei annual epo s, aises conce ns abou he
gene alizabili y o ou esul s o he b oade popula ion. In he u u e, i would be
aluable o explo e he compa a i e impac o ESG guideline adop ion on ea nings
managemen in Kuwai , conside he mode a ing ole o co po a e go e nance
mechanisms, and po en ially expand he s udy o encompass MENA o Gul
coun ies, enhancing he o e all gene alizabili y and obus ness o empi ical
indings.
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