Does corporate financial reporting on the sustainable development goals (SDGs) enhance earnings quality? The moderating role of foreign ownership

Abstract

Purpose

The purpose of this study is to examine the nexus between corporate financial reporting on the Sustainable Development Goals (SDGs) of the United Nations (UN) and earnings quality (EQ) and to further investigate whether foreign ownership moderates this nexus.

Design/methodology/approach

This study tests the proposed hypotheses by applying multivariate regression analyses to a sample of non-financial firms listed on the United Arab Emirates (UAE) stock exchanges over the 2016–2023 period. The authors construct a composite index for SDGs reporting based on the 17 SDGs’ indicators developed by the UN and use discretionary accruals as a proxy for financial reporting quality. Data on SDG disclosures and foreign ownership are manually collected from annual reports, while financial data are derived from the Thomson Reuters Eikon database.

Findings

The results of this paper show that SDG disclosures have a positive impact on earnings’ quality. This finding is consistent with the argument that firms with higher levels of SDG disclosures are associated with better financial reporting quality. The results also show that foreign ownership positively moderates the link between SDG disclosures and EQ. This means that SDG disclosures are more effective at improving the quality of financial reporting in firms where a substantial number of shares are held by foreign investors.

Practical implications

This study has significant implications for shareholders and policymakers functioning in the UAE. First, it encourages UAE firms to provide more SDG information in their annual reports because doing so improves financial reporting quality, which ultimately increases shareholders’ confidence in capital markets. Second, given that foreign ownership plays a pivotal role in strengthening the relationship between SDG disclosure and EQ, parties interested in assessing the quality of financial statements are urged to consider not only the volume of SDG-related information but also the extent to which a firm has foreign equity ownership.

Social implications

This study shows how compliance with the UN SDGs promotes financial reporting quality, thereby contributing to firms’ long-term sustainability goals. This study also highlights the need for sustainable investment in the UAE and abroad in promoting socially responsible organizations.

Originality/value

This research contributes to prior work in two ways. First, to best of the authors’ knowledge, this research is the first to analyze the connection between SDG disclosures and EQ in the Middle East region. Second, this study provides new evidence that the positive connection between SDG disclosure and EQ is more pronounced in firms with high foreign ownership.

Citation

Al-Hiyari, A., Kolsi, M.C. and Dungore, P.P. (2025), "Does corporate financial reporting on the sustainable development goals (SDGs) enhance earnings quality? The moderating role of foreign ownership", Society and Business Review, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/SBR-09-2024-0300