Sustainability Commitment Versus Earnings Management Practices: Saudi Insights

Abstract

This paper aims to examine the impact of corporate sustainable management (CSM) on earnings management (EM) activities using annual data from 2018 to 2022 for 37 non-financial Saudi indexed firms. A multi-measure approach was utilized to proxy for EM (AEM and REM) and CSM (CSR sustainability reporting, CSR sustainability committee, CSR sustainability external audit, GRI report guidelines, ESG performance index). The empirical analysis employed pooled ordinary least squares (POLS) regression. The results suggest that CSM plays a significant role in reducing both AEM and REM practices, indicating that sustainability-oriented organizations mitigate EM activities. Furthermore, the study reveals a negative correlation between CSM and sales manipulation, overproduction, and cutting discretionary expenditures. This research supports the notion that companies prioritize sustainable management due to a focus on long-term strategies and transparency. This is the first work in the Middle East and Arab region, particularly in Saudi Arabia, investigating this association.