Abstract:

The aim of this study is to examine the relationship between corporate social responsibility (CSR) and earning management (EM) of companies listed in Gulf Cooperation Council (GCC) stock exchanges for a five years period (2016-2020). To determine the CSR disclosure, the author first categorized the annual reports on a yearly basis and examined the annual reports of the companies to identify the proposed CSR indicators using content analysis. By using the discretionary accruals to measure earnings management and by applying the multivariate regression models it was found that there is a significant negative association between earnings management and corporate social responsibility disclosure indicating that most of the firms in the GCC region are transparent with the CSR disclosure, therefore, gains more stakeholders’ confidence. The study also found that audit committee effectiveness is having a significantly negative association with EM whilst cash flow from operations and financial leverage have a positive association with EM. The results of this study are undoubted of great interest to the regulatory bodies, shareholders, and governments in the emerging markets. This study acts as a knowledge resource in understanding the role of opportunistic managers in developing information asymmetry and agency conflicts hidden under the shadow of CSR disclosure. The study also facilitates the policymakers regarding the loopholes in CSR rules and assists them to mitigate the concerns and thereby empowering them to safeguard the investors’ interest.

Keywords: Corporate social responsibility, Earnings management, GCC counties