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This study aims to investigate the association between corporate environmental disclosure (CED) and earnings management (EM) in a Gulf Cooperation Council (GCC) emerging market, namely, Kuwait.

Using panel data from firms listed on the Kuwaiti stock exchange from 2010 to 2014, this paper applies a fixed-effects model to examine the CED-EM nexus. This analysis was supplemented with estimating a two-stage least-squares (2SLS) model and a generalised method of moment model to address any concerns regarding endogeneity problems.

The results are suggestive of a significant and negative relationship between CED and EM in Kuwait. This implies that the environmentally responsible managers are less likely to be engaged in EM practices in Kuwait.

The theoretical implication of the results of this study is that managers in Kuwait seem to use CED as a method to decrease the possibility of any formal or informal actions that could be imposed upon their activities.

So far, a limited number of studies focused on examining the CED-EM nexus internationally. Furthermore, studies carried out to examine the CED-EM link within a GCC market is virtually non-existent. This study, therefore, presents the first empirical analysis of this relationship in Kuwait. Also, this study is of a significant value stemming from the environmental challenges that are facing Kuwait as an oil-reliant economy coupled together with the crucial economic development in Kuwait and its critical contribution to the GCC economy.

The study aims to examine the role of unrealized gains and losses recognized under international accounting standards (IAS) 39 in explaining stock prices for investment companies listed on the Kuwait Stock Exchange (KSE), and how the inclusion of unrealized gains and losses in income numbers affect the incremental explanatory power of earnings.

The study utilizes Ohlson’s (1995) valuation model combined with a technique developed by Theil (1971) that has been applied in several prior studies.

The results of the cross-sectional regression indicate that net income and book values jointly and individually are positively and significantly related to stock prices; the incremental information content of net income is greater than that of book values; the inclusion of unrealized gain in income numbers increases the explanatory power of the model; and the incremental information content of net income before unrealized gains and losses is lower than that of book value. Thus, including unrealized gains and losses from investment in net income enhances the incremental information content of earnings. Our overall results show that unrealized gains and losses play an important role in explaining stock prices for investment companies in Kuwait, and that including them in the income numbers increases the incremental explanatory power of earnings.

This study is original because it is the first to empirically investigate the role of unrealized gains and losses recognized under IAS 39 in explaining stock prices for investment companies listed on the KSE and how the inclusion of unrealized gains and losses in income numbers affect the incremental explanatory power of earnings.