Financial Facades and Sustainable Realities: Earnings Management across Distressed and Healthy GCC Enterprises

Abstract

Earnings management remains a contentious issue in financial reporting, often obscuring the true economic performance of firms. In the Gulf Cooperation Council (GCC) region, where economic diversification and sustainability are strategic goals, the practice of managing earnings presents challenges to transparency and long-term resilience. This study examines the extent and nature of earnings management across distressed and financially healthy firms in the GCC. By leveraging accrual-based and real earnings management models, and differentiating between distressed and non-distressed entities, we explore how financial pressure influences reporting behavior. The findings suggest that distressed firms are more likely to engage in opportunistic earnings manipulation, while healthy firms tend to manage earnings for signaling stability and attracting investment. These dynamics have profound implications for regulators, investors, and policymakers seeking to foster sustainable and trustworthy financial systems in the region.