This study aims to investigate the association between corporate environmental disclosure (CED) and earnings management (EM) in a Gulf Cooperation Council (GCC) emerging market, namely, Kuwait.
Using panel data from firms listed on the Kuwaiti stock exchange from 2010 to 2014, this paper applies a fixed-effects model to examine the CED-EM nexus. This analysis was supplemented with estimating a two-stage least-squares (2SLS) model and a generalised method of moment model to address any concerns regarding endogeneity problems.
The results are suggestive of a significant and negative relationship between CED and EM in Kuwait. This implies that the environmentally responsible managers are less likely to be engaged in EM practices in Kuwait.
The theoretical implication of the results of this study is that managers in Kuwait seem to use CED as a method to decrease the possibility of any formal or informal actions that could be imposed upon their activities.
So far, a limited number of studies focused on examining the CED-EM nexus internationally. Furthermore, studies carried out to examine the CED-EM link within a GCC market is virtually non-existent. This study, therefore, presents the first empirical analysis of this relationship in Kuwait. Also, this study is of a significant value stemming from the environmental challenges that are facing Kuwait as an oil-reliant economy coupled together with the crucial economic development in Kuwait and its critical contribution to the GCC economy.
