This study evaluated the impact of corporate social responsibility (CSR) on earnings management (EM), accrual-based and real activities, with a particular focus on the moderating role of institutional ownership, in firms listed on stock exchanges of Middle Eastern Arab countries, including Saudi Arabia, Iraq, Kuwait, the United Arab Emirates, and Qatar.
Employing a causal-correlational design grounded in a positivist research paradigm, the study utilizes panel data regression models based on actual firm-level data.
The findings indicated that the influence of CSR on EM is not homogeneous across the countries under review and is significantly shaped by institutional context, the level of capital market development, ownership structures, and the degree of corporate governance transparency. Specifically, CSR has often functioned as a symbolic legitimacy mechanism, coinciding with observed earnings management practices in countries with weaker regulatory frameworks and concentrated ownership structures, such as Iraq and Saudi Arabia. Conversely, CSR has served as a deterrent to managerial opportunism in countries with stronger institutional governance and more robust disclosure environments, such as the UAE and Qatar. The results further suggested that institutional ownership generally plays a controlling role in mitigating earnings management, but its effectiveness is contingent upon factors such as the type of institutional investor (financial or strategic), ownership concentration, and investment horizon. These findings aligned with agency and legitimacy theories, emphasizing that CSR, in weak institutional settings, did not necessarily reflect ethical behavior and may instead serve as a strategic tool to manipulate stakeholder perceptions. This research offered policy recommendations aimed at enhancing transparency and corporate governance in the region and contributes to the accounting literature by illuminating the behavioral dynamics of CSR and earnings quality in emerging markets.
While the Arab Middle East is still in the process of institutional transition and ESG disclosure, the actual function of CSR in reducing or concealing EM, as well as the unknown role of institutional ownership in this regard, remains unclear. The present study fills this gap by examining companies listed on the stock exchanges of Iraq, Saudi Arabia, Kuwait, Qatar, and the UAE, and by empirically analyzing the relationship between CSR and EM and the role of institutional ownership, which helps to reinterpret the function of CSR in weak institutional environments and concentrated ownership. The results can guide policymakers and regulatory agencies to improve financial transparency and design ESG mechanisms in the region.
