Effect of Earnings Management on Earnings Quality and Sustainability: Evidence from Gulf Cooperation Council Distressed and Non-Distressed Companies

Khaled Aljifri () and Tariq Elrazaz
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Khaled Aljifri: Accounting Department, College of Business & Economics, United Arab Emirates University, Al-Ain P.O. Box 15551, United Arab Emirates
Tariq Elrazaz: Accounting Department, College of Business & Economics, United Arab Emirates University, Al-Ain P.O. Box 15551, United Arab Emirates

JRFM, 2024, vol. 17, issue 8, 1-21

Abstract: This study evaluates the effect of earnings management on earnings quality and sustainability in the GCC region, particularly in distressed and non-distressed companies. Studies on earnings quality and sustainability have mostly concentrated on developed markets, with little attention paid to emerging markets like the GCC region. This research is the first to examine how manipulating earnings impacts the quality and sustainability of earnings in distressed and non-distressed companies. This study utilized a unique dataset that represents the GCC region, which has a specific socio-cultural context. We collected data from 839 publicly listed companies in the GCC region between 2011 and 2022 using DataStream ® , WorldScope (WS), and Refinitiv Eikon. To test our hypotheses and ensure accuracy, we used three types of regressions (the fixed effects model, OLS, and 2SLS) and conducted robustness and endogeneity tests. The results of this study indicate that accruals-based earnings management has a negative impact on earnings quality for distressed and non-distressed firms but a positive effect on earnings sustainability for both types of companies. The results of this study also find variations in earnings management practices across industries. These findings provide valuable guidance for auditors, investors, and other stakeholders to evaluate the earnings quality and sustainability of distressed and non-distressed companies, benefiting the GCC economy and similar economies.

Keywords: earnings management; earnings quality; earnings sustainability; distressed companies; discretionary accruals; GCC countries (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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