Economic Sustainability Through Disclosure: Knowledge Management, Reporting Quality, and Corporate Performance in the Arab Gulf Region

Abstract

This study examines whether sustainability information disclosure (SID) in the Arab Gulf acts as a substantive strategic tool that enhances corporate outcomes or merely serves as a symbolic gesture to maintain legitimacy. Using data from 92 listed firms across the Gulf Cooperation Council (GCC) from 2020 to 2023, the study distinguishes between the level (volume) and quality (credibility) of disclosure. It examines their respective impacts on return on assets (ROA), return on equity (ROE), and financial reporting quality. The results reveal a consistent positive association between disclosure levels and financial performance, suggesting that volume-based corporate environmental, social, and governance (ESG) reporting may support short-term legitimacy and market confidence. In contrast, disclosure quality shows weaker and less consistent effects, highlighting a potential disconnect between visibility and substance. This pattern reflects the strategic use of disclosure for symbolic compliance in the GCC, where ESG reporting is often adopted to satisfy external expectations rather than to support internal transformation or long-term value creation. The findings position sustainability disclosure as an underleveraged tool for strategic knowledge management. While current practices enhance legitimacy, they fall short of driving performance gains through internal learning or reporting integrity. Policy implications include the need for harmonised disclosure frameworks, mandatory assurance standards, and improved alignment with international ESG guidelines to strengthen the credibility and impact of corporate sustainability communication in emerging markets.

1. Introduction

Over the past two decades, sustainability information disclosure (SID) has evolved from a voluntary and often peripheral activity into a central dimension of corporate governance and strategic management. This evolution reflects broader global transformations, as mounting pressures from climate change, technological disruption, and shifting societal expectations increasingly shape how organisations balance profitability with accountability [1,2]. Investors, regulators, employees, and the broader public are demanding greater transparency regarding corporate environmental, social, and governance (ESG) practices. In response, disclosure has emerged as a key mechanism for firms to communicate their sustainability commitments, reduce information asymmetries, and build trust with stakeholders. Beyond its role in enhancing transparency, disclosure can also be understood as a strategic knowledge management process, enabling organisations to capture, codify, and disseminate sustainability information in ways that strengthen competitiveness, stimulate innovation, and contribute to long-term economic sustainability. This view is supported by evidence which emphasises that when ESG disclosure is embedded in internal knowledge management systems, it can drive operational learning, align strategic objectives, and support long-term performance in UAE organisations [3].

The academic literature offers extensive but often contradictory findings on the relationship between disclosure and corporate outcomes. While some studies identify positive links with financial performance, others find weak, negligible, or even negative effects, particularly in emerging markets where institutional voids, limited enforcement, and symbolic compliance are common [4,5,6]. A key reason for this inconsistency is the failure to distinguish between the level (i.e., quantity or volume) and quality (i.e., credibility, specificity, and assurance) of disclosure. Treating disclosure as a uniform construct obscures the mechanisms through which it may influence performance or reporting outcomes. This issue is especially critical in the Arab Gulf, where ambitious national sustainability agendas, such as Saudi Vision 2030 and the UAE’s Green Agenda 2030, co-exist with limited institutional capacity and varied corporate governance maturity. Firms in the region often publish extensive sustainability reports to signal compliance with global norms, yet these reports may lack depth, third-party assurance, or strategic alignment [7,8]. The result is a disclosure landscape shaped more by visibility imperatives than by a commitment to transformational ESG integration.

Despite these developments, significant challenges remain. Sustainability reporting across the Gulf is still fragmented, characterised by inconsistent standards, varying levels of detail, and limited third-party assurance [9,10]. Many firms adopt disclosure primarily as a compliance tool to satisfy regulatory or reputational pressures rather than as an integrated component of strategic management. Others disclose selectively, highlighting favourable information while omitting controversial or material issues. This raises doubts about the extent to which disclosure in the region genuinely improves corporate outcomes.

This regional context also intersects with broader theoretical debates. Stakeholder theory suggests that disclosure builds trust and reduces information asymmetry, thus supporting long-term financial performance [11,12]. Legitimacy theory emphasises that firms disclose to maintain societal approval and mitigate reputational risks, even when substantive change is lacking [13,14]. More recently, knowledge management theory positions SID as a process of internal learning and governance enhancement, where high-quality disclosure can foster innovation, accountability, and strategic alignment [3,15].

The existing literature provides limited insight into the duality between disclosure level and disclosure quality in emerging markets. Studies have rarely analysed disclosure level and disclosure quality in tandem, leaving unclear whether it is the presence of information or its substance that drives performance outcomes. The study aims to determine whether sustainability disclosure in the Arab Gulf functions primarily as a symbolic signal to satisfy external expectations, or whether it actually contributes to strategic performance enhancement and stronger financial governance. This study builds on these perspectives to examine whether SID in the Arab Gulf operates as a meaningful driver of corporate value or merely as a legitimating device. The investigation is particularly relevant given the ongoing introduction of ESG indices, sustainability reporting guidelines, and green investment policies across the GCC. Nevertheless, despite these policy efforts, disclosure in the region remains voluntary, mainly unstandardised, and prone to symbolic implementation.

The core research problem addressed in this study is the ambiguity surrounding the actual contribution of sustainability disclosure to financial performance and reporting quality in GCC firms. Specifically, this study seeks to determine whether the level and quality of disclosure exert distinct effects under the region’s unique institutional and governance conditions. To guide this analysis, the study asks the following research questions:

• To what extent does the volume (level) of sustainability disclosure impact the financial performance of listed companies in the GCC?
• To what extent does the credibility (quality) of sustainability disclosure impact the financial performance of listed companies in the GCC?
• Does the level of sustainability disclosure influence the quality of financial reporting in these firms?
• Does the quality of sustainability disclosure enhance the transparency and integrity of financial reporting for GCC-listed companies?

By addressing these questions, the study responds to several gaps in the existing literature. First, it clearly distinguishes between disclosure level and disclosure quality, two dimensions often conflated in prior research. Second, it applies a multi-theoretical framework to explain observed variations in disclosure effectiveness better. Third, it examines both financial performance and financial reporting quality, an area that has received comparatively less attention despite its importance for transparency and integrity in governance. Finally, the study contributes empirical evidence from the Arab Gulf, a region underrepresented in ESG scholarship despite its growing importance in global financial markets.

In doing so, this study advances a more nuanced and context-specific understanding of sustainability disclosure. It challenges the assumption that more disclosure inherently leads to better outcomes and instead interrogates the conditions under which disclosure is credible, strategic, and impactful. The findings are expected to offer both theoretical contributions and practical implications for ESG policy design, corporate strategy, and stakeholder engagement in emerging economies.

2. Literature Review

2.1. Conceptualising Sustainability Information Disclosure

Sustainability information disclosure (SID) is broadly defined as the communication of environmental, social, and governance (ESG) practices by firms to their stakeholders. Initially rooted in corporate social responsibility reporting, SID has evolved into a strategic mechanism for managing reputation, reducing information asymmetries, and aligning with global regulatory expectations [16,17]. As firms face growing expectations from investors, regulators, and civil society, SID is increasingly viewed as both a tool of accountability and a mechanism for demonstrating long-term value creation [18]. However, the literature presents divergent interpretations of whether disclosure reflects substantive ESG commitments or primarily serves as a symbolic tool to satisfy external demands [4,19].

This tension between substance and symbolism is especially evident in emerging markets, where disclosure practices may be adopted to demonstrate compliance without meaningfully advancing sustainability integration. Despite a growing global consensus on the importance of mandatory frameworks such as the European Union’s Corporate Sustainability Reporting Directive (CSRD), implementation in Gulf Cooperation Council (GCC) countries remains inconsistent and largely voluntary [7,10]. This inconsistency raises a fundamental question: To what extent does SID in these contexts deliver genuine governance or economic outcomes? In the GCC, evidence shows that the mere presence of disclosure can still be priced positively by investors when accompanied by credible assurance structures, indicating that legitimacy effects dominate in settings where reporting is evolving [20]. Consistent with a resource-based and knowledge management view, firms with stronger internal governance and innovation capabilities disclose more extensively and credibly, suggesting that capability endowments, not compliance alone, shape disclosure trajectories [21]. Recent scholarship has increasingly framed SID as a strategic knowledge management tool, rather than merely a compliance activity. Scholars conceptualise disclosure as a mechanism for internalising ESG commitments, embedding sustainability into organisational processes, and aligning internal and external stakeholders around strategic goals [3]. This perspective marks a shift from traditional interpretations grounded solely in legitimacy theory.

Nevertheless, limited research exists on how firms in emerging markets develop the internal competencies necessary to move beyond symbolic disclosure. Some argue that many GCC firms lack the knowledge systems required to institutionalise learning from disclosure [8,9]. As a result, reporting often remains superficial, with little impact on decision-making or performance.

2.2. Level Versus Quality of Disclosure

A critical debate within the disclosure literature centres on whether the level or the quality of sustainability information delivers value. Level refers to the amount or breadth of ESG information disclosed. At the same time, quality denotes the credibility, depth, and alignment of that information with recognised global standards such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) [4,22]. The two dimensions are distinct and should not be treated as interchangeable.

Early studies often equate high levels of disclosure with organisational maturity. However, more recent analyses suggest that volume alone does not guarantee meaningful transparency. Firms may publish expansive reports while omitting material issues, neglecting third-party assurance, or failing to integrate ESG concerns into core strategies. This phenomenon, often described as the “volume illusion,” suggests that disclosure can be used as a tool of symbolic compliance rather than strategic governance. Empirical research in emerging markets supports this interpretation. Scholars argue that firms in such contexts often produce voluminous reports that lack depth and comparability [23,24]. In the GCC, banks and energy companies frequently issue detailed reports to comply with regulatory expectations, yet these disclosures rarely undergo third-party verification [9,10]. These practices reflect a broader tendency to prioritise the visibility of disclosure over its credibility.

Others [25] offer important insight by demonstrating that third-party assurance significantly moderates the relationship between disclosure and performance. Their findings indicate that disclosure effectiveness is not determined solely by its content, but by the governance structures that support its credibility. The failure of many studies to distinguish between assured and unaudited disclosure contributes to inconsistent empirical results and weakens policy relevance.

Stakeholder theory posits that both disclosure level and quality matter because stakeholders value information that is not only available but also reliable [11,12]. However, legitimacy theory offers a more critical lens, suggesting that firms may adopt high disclosure levels to conform with normative expectations without making substantive changes [13]. From this perspective, disclosure can serve as a strategic decoupling tool, satisfying external stakeholders while masking internal deficiencies. A knowledge management perspective challenges this view by framing high-quality disclosure as a learning mechanism that enables organisational growth, innovation, and improved governance [15,26,27]. Critically, recent GCC evidence shows that disclosure level is consistently associated with stronger firm outcomes, while disclosure quality is only value-relevant when supported by assurance and robust governance, highlighting why mixed results persist across studies [20,28,29]. Nevertheless, empirical research remains limited in tracing how firms use ESG information to inform internal decision-making. Evidence reveals that this disconnect arises because disclosure in the GCC is often managed by external consultants rather than internal teams [8]. As a result, ESG reporting fails to contribute meaningfully to strategic development or operational improvement. This outsourcing of disclosure inhibits the internalisation of sustainability knowledge and reduces the potential impact of reporting.

Seminal knowledge-creation models provide a theoretical lens through which disclosure can be seen as a process of externalisation, converting tacit knowledge into explicit, actionable insights. However, for this process to be effective, disclosure must be both credible and reintegrated into organisational learning systems [30]. Without strong feedback loops and internal ownership, disclosure remains an output rather than a catalyst for change. Knowledge-based theory of the firm further suggests that information acquires strategic value only when it is integrated into core processes [27]. In the GCC, many firms fail to achieve this level of integration, leading to a gap between reported ESG intentions and actual practices.

The evidence supports evaluating disclosure level and quality as distinct but interrelated variables. High volumes of low-quality disclosure undermine credibility, while high-quality disclosure that lacks visibility may limit its impact on stakeholders. Few studies have tested these dynamics jointly, and even fewer have examined them in the Gulf context, where institutional enforcement is uneven and governance maturity varies significantly. Experimental evidence further indicates that stakeholders discount output- or outcome-oriented claims and reward only impact-level disclosures, a direct challenge to quantity-based indices that conflate visibility with substance [31]. This study addresses this gap by analysing both dimensions using a multi-country GCC sample.

2.3. Sustainability Disclosure and Financial Performance: Global Evidence

The relationship between sustainability disclosure and financial performance has generated considerable academic interest, yet the evidence remains inconclusive and often fragmented. While some scholars argue that disclosure strengthens financial outcomes by enhancing transparency, reducing information asymmetries, and attracting ethically motivated investors [16,19], other studies challenge the universality of these claims. The observed benefits of disclosure are highly conditional, shaped by the credibility of the information disclosed, the institutional context, and the expectations of relevant stakeholders.

Proponents of sustainability disclosure often adopt a stakeholder theory perspective, suggesting that transparent ESG communication fosters investor trust, lowers capital costs, and enhances firm reputation [11,12]. Positive financial effects are documented in several studies. Several studies report that firms adopting voluntary disclosure frameworks have achieved significant improvements in profitability [32,33,34,35,36]. However, many of these studies do not differentiate between the level and quality of disclosure and rarely control for institutional conditions, thereby limiting the generalisability of their findings.

Conversely, a growing body of literature reports null or even negative relationships between disclosure and financial performance [6,25,37,38]. In emerging markets, market participants often reward the presence of disclosure rather than its depth; accounting measures such as ROA and ROE tend to be more responsive than Tobin’s Q, and institutional weaknesses dilute the effect of quality-oriented indicators, patterns consistent with new evidence on institutional ownership and ESG valuation [29]. In a study of Indonesian firms, only social disclosure was positively associated with performance, whereas environmental and governance disclosure were not [39]. Similarly, others observed no meaningful link between disclosure and financial performance in Indian firms [5]. These findings suggest that stakeholders may value specific aspects of ESG disclosure over others, and that disclosure effectiveness depends on alignment with stakeholder priorities, which vary across regions and industries.

Firm-level characteristics further complicate this relationship. Factors such as profitability and leverage not only influence a firm’s likelihood of disclosing ESG information but also mediate the financial consequences of such disclosure [40]. Findings imply that disclosure may be a consequence of good performance rather than its cause, introducing potential endogeneity that is seldom addressed in empirical models. The reversed causality challenges the common assumption that disclosure directly drives financial outcomes.

Another significant issue is the widespread reliance on self-reported disclosure data. Many studies fail to account for greenwashing or to assess whether disclosure is subject to independent verification. This absence of credibility metrics undermines the robustness of conclusions. When studies treat all forms of disclosure as equivalent, regardless of content quality or intent, they risk conflating symbolic gestures with substantive ESG practices.

The literature also exhibits two major conceptual oversights. First, many studies treat disclosure as a homogenous construct, without distinguishing between volume and substance. This lack of conceptual clarity creates measurement bias and reduces explanatory power. Second, the role of the institutional environment is often understated, despite substantial evidence that regulatory strength, cultural norms, and enforcement mechanisms critically shape the effectiveness of disclosure.

Recent studies that address these limitations provide more nuanced insights. Scholars demonstrate that disclosure quality, rather than volume, is more strongly correlated with financial benefits [22,38,41]. Complementing this, Saudi and GCC studies show that both the level of disclosure and quality of disclosure can increase firm value when credibility is signalled through governance and assurance, although sectoral and religious banking contexts may experience short-term profitability trade-offs [31,41,42]. These studies incorporate controls for assurance, alignment with international frameworks, and stakeholder engagement, offering more precise assessments of the disclosure-performance link. However, such methodological rigor remains rare in the mainstream accounting literature, which continues to prioritise quantity-based metrics.

Taken together, these findings mark the importance of conceptual disaggregation in sustainability disclosure research. To understand the economic implications of disclosure, it is essential to distinguish between level and quality and to situate both within the broader institutional and organisational contexts in which firms operate. This study addresses this need by evaluating disclosure level and quality as separate constructs and exploring their independent associations with financial performance among firms in the Arab Gulf.

2.4. Sustainability Disclosure and Financial Reporting Quality

While the global literature provides a range of findings on the link between sustainability disclosure and corporate performance, these contradictions are even more pronounced within the Gulf Cooperation Council (GCC) context. The region presents a unique institutional configuration, characterised by strong state-led development agendas, relatively weak regulatory enforcement, and high ownership concentration. These conditions shape how sustainability disclosure is adopted and the extent to which it translates into tangible performance benefits.

Several empirical studies have reported positive associations between sustainability disclosure and firm performance in the GCC. In the United Arab Emirates and Saudi Arabia, mandatory disclosure requirements were associated with improvements in return on assets, return on equity, and Tobin’s Q. These findings suggest that, in contexts where government policy and capital market reforms align, disclosure may function as a credible signal to investors and support performance gains. However, these studies often fail to differentiate between disclosure level and quality. Most rely on disclosure indices that emphasise the presence or volume of sustainability-related information, without assessing its depth, credibility, or alignment with international frameworks. Consequently, they may conflate superficial compliance with strategic integration. The absence of third-party assurance or content verification further undermines the reliability of their findings.

In contrast, other studies highlight the potential risks and limitations of sustainability disclosure in the region. There is evidence of a negative association between disclosure and performance in a sample of Saudi firms [6,38,41]. The scholars attributed this outcome to high implementation costs and to CEO characteristics that influence disclosure decisions. Similarly, others reported adverse effects of disclosure in GCC banks, raising questions about the actual value derived from reporting practices that may be driven more by reputational concerns than by internal strategic priorities [37]. Robust evidence shows that higher disclosure levels are associated with superior performance in Saudi and broader GCC samples [20,43], yet quality effects remain contingent: studies document either insignificant disclosure–quality–performance links or effects materialising only where assurance and governance quality are strong [28,44].

These contrasting findings point to a deeper structural issue. In many GCC firms, sustainability disclosure is not embedded within robust internal governance or knowledge systems. Instead, disclosure is often used as a symbolic tool to align with national development visions or to satisfy the expectations of international investors. The result is a form of “ritualistic compliance”, where firms disclose to signal legitimacy without altering their core operations or decision-making processes.

Sectoral variations further complicate the picture. UAE banks with higher levels of disclosure tended to perform better financially [37]. However, Islamic banks exhibited lower disclosure quality than their conventional counterparts, suggesting that cultural and operational differences may influence reporting integrity. Oil and gas firms in Qatar disclosed more extensively than firms in other sectors, yet their reports were often superficial and rarely supported by third-party audits [10]. These findings highlight that high levels of disclosure do not necessarily indicate high-quality or impactful reporting. A recent study provides additional insight into these dynamics by arguing that institutional voids and a lack of internal knowledge systems shape disclosure practices in the GCC [8]. Many firms outsource disclosure processes to consultants, producing reports that serve compliance or public relations purposes but are disconnected from strategic planning or operational decision-making. This disjunction between disclosure and organisational learning reduces the potential of sustainability reporting to generate performance benefits. This critique is further advanced by conceptualising sustainability disclosure as a knowledge management process [3]. The study argues that when disclosure is internally embedded and strategically aligned, it can enhance decision-making, improve governance structures, and support financial performance. However, they also emphasise that few firms in the GCC meet these conditions. The observed variability in disclosure outcomes is therefore not a function of volume alone, but of the intent, credibility, and integration of the disclosure process within the organisation.

Overall, the evidence from the GCC suggests that sustainability disclosure can support financial performance, but only under specific conditions. High-quality disclosure, supported by institutional alignment, independent verification, and internal learning systems, can yield positive outcomes. In the absence of these conditions, disclosure risks become symbolic, costly, or even counterproductive. This study addresses these gaps by analysing disclosure level and quality as separate constructs and by evaluating their individual and combined effects on performance across a multi-country GCC sample.

2.5. Theoretical Anchoring

The discourse surrounding sustainability disclosure is shaped by three primary theoretical frameworks: stakeholder theory, legitimacy theory, and knowledge management theory. Each framework offers a distinct lens for interpreting the motivations behind disclosure and its potential impacts on corporate outcomes. However, they also possess inherent limitations that contribute to inconsistencies in the empirical literature. This section critically examines these frameworks to establish the conceptual foundation for the current study.

Stakeholder theory [11,12] argues that sustainability disclosure serves as a strategic mechanism to manage relationships with diverse stakeholder groups. By reducing information asymmetries, firms enhance trust and build long-term legitimacy among investors, regulators, employees, and the wider public. This framework helps explain the positive association between disclosure and financial performance observed in some Gulf contexts. For instance, firms in the United Arab Emirates that align their sustainability reporting with national vision strategies, such as the Green Agenda 2030, have demonstrated stronger market outcomes [34,36].

Despite its explanatory power, stakeholder theory has been criticised for its overly optimistic assumptions. It presumes that stakeholders are uniformly rational, well-informed, and capable of rewarding transparent behaviour, conditions that are not always present in emerging markets. In contexts characterised by low regulatory enforcement and limited public scrutiny, such as parts of the GCC, stakeholder pressure may be insufficient to ensure substantive improvements in disclosure practices.

Legitimacy theory provides a more sceptical interpretation [13,14]. This framework posits that firms engage in sustainability disclosure to maintain social acceptance and protect their license to operate. From this perspective, disclosure may be more about image management than genuine transparency. Firms may publish sustainability reports that conform to institutional norms without implementing corresponding ESG practices internally. This interpretation is supported by empirical studies in the GCC, which show that disclosure is often symbolic, driven by compliance with national visions or market expectations, rather than internal governance reforms [6,37]. While legitimacy theory successfully accounts for the persistence of low-quality disclosures in weak regulatory environments, it often treats firms as passive actors responding defensively to external pressures. It offers limited insight into the internal dynamics that may lead firms to adopt more proactive, transformational disclosure approaches.

Knowledge management theory addresses this limitation by conceptualising sustainability disclosure as an internal process that facilitates learning, strategic alignment, and innovation. Knowledge is created through the interaction of tacit and explicit information [37], and disclosure can serve as a mechanism for converting internal knowledge into shared organisational assets. When embedded within knowledge systems, sustainability disclosure can improve internal coordination, support decision-making, and enhance performance. Evidence reinforces this view, arguing that high-quality disclosure, supported by internal capabilities and strategic intent, can drive organisational change and improve financial reporting integrity [3,45]. However, the effectiveness of this framework depends heavily on organisational context. In the Arab Gulf, many firms lack the internal structures and competencies to embed sustainability information within governance systems. Disclosure practices in the region are frequently outsourced to consultants and treated as compliance exercises, rather than as opportunities for learning and integration [8]. In such settings, the potential benefits of disclosure articulated by knowledge management theory remain largely unrealised.

Taken together, these three theoretical perspectives reveal a central tension in the disclosure literature. Recent evidence supports this triangulation: capability endowments and governance resources drive credible disclosure [21]; impact-level signals, not mere volume, build stakeholder trust [31]; and high-quality environmental responsibility is associated with improved earnings quality in mature institutions, underscoring why quality effects are weaker in less developed settings [46]. On the one hand, disclosure is expected to enhance transparency, accountability, and performance. On the other hand, in the absence of enforcement, assurance, and internal capacity, disclosure may function as a symbolic act with limited impact on substantive outcomes. This paradox is particularly acute in institutional environments such as the GCC, where ambitious national sustainability visions coexist with fragmented regulatory frameworks and varying levels of corporate governance maturity.

The current study is situated within this theoretical debate. By distinguishing between high-volume and high-quality sustainability disclosure, it seeks to evaluate the extent to which disclosure serves as a mechanism for strategic alignment and learning rather than a tool for legitimacy maintenance. In doing so, the study contributes to a more nuanced understanding of how firms navigate the tensions between external pressures, internal capabilities, and stakeholder expectations in shaping ESG reporting practices.

2.6. Research Gap and Hypotheses

Despite the growing body of research linking sustainability disclosure to financial performance and reporting quality, several critical limitations remain unresolved. First, a large proportion of studies treat disclosure as a homogeneous construct, failing to differentiate between disclosure level, the volume of information disclosed, and disclosure quality, the credibility, substance, and assurance of the disclosed content. This conflation limits theoretical clarity and hinders the ability to identify which dimension drives corporate outcomes. As a result, the effectiveness of disclosure remains contested in both academic and policy circles. Second, although stakeholder and legitimacy theories have been widely employed to frame sustainability disclosure, there is insufficient integration of a knowledge management perspective that could explain the internal mechanisms through which disclosure generates value. While stakeholder theory emphasises the external relationships firms must manage and legitimacy theory explains the pressures for conformity with societal norms, knowledge management theory extends the analysis to the internal processes that mediate disclosure’s impact on governance and performance. However, this perspective has yet to be operationalised in many empirical studies, particularly in the context of emerging markets. Third, research in the Arab Gulf region remains fragmented, outdated, or focused narrowly on single-country or sector-specific analyses. These studies often overlook the region’s unique institutional conditions, such as state-led sustainability agendas, symbolic compliance pressures, and the persistence of institutional voids. While recent policy frameworks such as the UAE’s Green Agenda 2030 and Saudi Arabia’s Vision 2030 have promoted ESG awareness, implementation across the Gulf remains inconsistent. Moreover, existing studies have rarely examined disclosure’s dual function as both a strategic management tool and a symbolic response to institutional pressures.

This study makes three key contributions. First, it addresses the conceptual ambiguity by disaggregating sustainability disclosure into its level and quality components. By doing so, it offers a more nuanced understanding of which aspects of disclosure are more strongly associated with financial and reporting outcomes. Second, it extends the theoretical lens by integrating knowledge management theory alongside stakeholder and legitimacy theories, providing a multi-dimensional explanation of disclosure dynamics. This enables the study to explore not only how firms respond to external pressures but also how they internalise sustainability commitments through disclosure practices. Third, the study adopts a multi-country design across the Gulf Cooperation Council (GCC), offering rare comparative insight into how disclosure operates in hybrid institutional contexts where global norms are promoted but local enforcement is uneven.

Through this framing, the study challenges the assumption that disclosure uniformly delivers benefits. Instead, it evaluates the conditions under which sustainability disclosure, whether high in volume or quality, contributes to performance enhancement and reporting integrity. It also highlights the potential role of knowledge systems, internal capabilities, and governance mechanisms in shaping the credibility and utility of ESG information. In doing so, the study contributes to advancing theoretical debates, refining empirical understanding, and generating context-sensitive policy implications for sustainability governance in the Arab Gulf.

Although sustainability disclosure has received substantial scholarly attention, the literature remains marked by conceptual ambiguity, methodological limitations, and conflicting empirical findings. A critical issue is the failure to distinguish between two distinct dimensions of disclosure: level, which refers to the volume or extent of information provided, and quality, which denotes the credibility, substance, and assurance of the disclosed information. This lack of differentiation has hindered the ability to clarify the mechanisms through which disclosure influences corporate outcomes and to draw generalisable conclusions across diverse institutional settings.

Most empirical studies prioritise disclosure level by employing content analysis or disclosure indices that count the presence of ESG-related items without evaluating their depth, accuracy, or verification. While methodologically expedient, this approach conflates visibility with value and risks misinterpreting superficial compliance as genuine sustainability commitment. As a result, positive associations between disclosure and performance reported in some studies may reflect visibility effects rather than substantive ESG integration. Furthermore, relatively few studies address the role of contextual factors, such as regulatory enforcement, stakeholder influence, or governance capacity, in moderating the effects of disclosure. In the context of the Gulf Cooperation Council (GCC), these factors are especially salient. Institutional voids, voluntary reporting regimes, and limited assurance mechanisms mean that firms often engage in disclosure practices that are extensive in volume but weak in quality. Consequently, the strategic value of sustainability disclosure remains unclear in many sectors across the region.

To address these gaps, this study proposes a multi-dimensional approach that distinguishes between disclosure level and disclosure quality and examines their relationships with financial performance and financial reporting quality. The study is situated in the Arab Gulf context, where firms operate within hybrid institutional environments shaped by both global ESG norms and local compliance dynamics.

The first area of investigation concerns disclosure level. According to stakeholder and legitimacy theories, greater disclosure can reduce information asymmetries, enhance legitimacy, and strengthen stakeholder confidence. Evidence from GCC studies supports this view [34,36], although contradictory findings [6] highlight the importance of contextual factors such as institutional enforcement and sectoral characteristics. Based on this, the following hypothesis is proposed:

H1. 

The level of sustainability disclosure is positively associated with financial performance.

The second hypothesis focuses on disclosure quality. High-quality disclosure, characterised by specificity, alignment with recognised standards, and third-party assurance, is expected to generate stronger stakeholder trust and internal governance benefits. High-quality disclosures signal genuine commitment and are more likely to enhance reputation and investor confidence, while poor-quality disclosures risk being perceived as symbolic or opportunistic, thereby eroding trust [22]. Empirical findings reinforce this distinction: employee-related disclosures exerted more substantial positive effects on profitability than governance-related disclosures [47], while environmental disclosures improved ROE but negatively affected Tobin’s Q [41]. These results pronounce the need to examine disclosure quality independently, especially in the Arab Gulf, where sustainability reporting remains uneven and often lacks assurance. This leads to the second hypothesis:

While several studies emphasise the importance of disclosure quality [45,48], empirical evidence in the GCC remains limited. Accordingly,

H2. 

The quality of sustainability disclosure is positively associated with financial performance.

The third area of analysis shifts focus from profitability to reporting integrity. Theoretical frameworks suggest that sustainability disclosure may act as a self-monitoring mechanism, reducing managerial discretion and enhancing the reliability of financial reporting. Empirical findings from emerging markets support this view [15,49], although these effects may be attenuated in institutional environments characterised by weak enforcement. The third hypothesis is therefore stated as follows:

H3. 

The level of sustainability disclosure is positively associated with financial reporting quality.

The final hypothesis concerns the relationship between disclosure quality and financial reporting credibility. Given that high-quality disclosure reflects deeper ESG integration, greater transparency, and internal accountability, it is expected to exert a more substantial influence on reporting outcomes. This hypothesis is particularly relevant in the GCC, where symbolic disclosure is widespread but demands for credibility are increasing [3,8]. Thus,

H4. 

The quality of sustainability disclosure is positively associated with financial reporting quality.

Together, these hypotheses allow for a comprehensive examination of the effects of sustainability disclosure on both financial and reporting outcomes. By distinguishing between levels and quality and situating the analysis within the specific institutional context of the Arab Gulf, the study seeks to generate nuanced insights into the strategic and symbolic functions of ESG reporting.

3. Methodology

3.1. Research Design

This study adopts a quantitative, explanatory research design to examine the relationship between sustainability disclosure and corporate outcomes among listed firms in the Arab Gulf region. The design is appropriate given the study’s objective of testing specific hypotheses concerning the association between disclosure practices, financial performance, and financial reporting quality. By distinguishing between the level and quality of disclosure, the study responds to calls in the literature for more nuanced analyses that move beyond aggregate disclosure indices [16,32]. Regression analysis was employed as it enables systematic testing of relationships while controlling for potential confounding variables.

3.2. Sample and Data Collection

The sample size of 92 firms was selected using a purposive sampling strategy to maximise industry diversity and ensure data availability across GCC stock markets. Representation was balanced across the UAE, Saudi Arabia, Qatar, Bahrain, Oman, and Kuwait to capture cross-national variations. Firms were included if they published both sustainability and financial reports consistently between 2020 and 2023. This timeframe was chosen because it coincides with the introduction of enhanced reporting requirements in the UAE and a growing regional focus on sustainability, particularly through national initiatives such as Saudi Arabia’s Vision 2030 and the UAE Green Agenda 2030. Cases with missing data or incomplete financial disclosure were excluded to avoid estimation bias.

The focus on listed companies reflects both their greater disclosure obligations and their strategic role in signalling sustainability practices to domestic and international investors. Financial institutions were excluded due to their distinct regulatory frameworks and sector-specific disclosure requirements, which could otherwise bias the analysis. The final sample encompasses multiple sectors, including industrials, energy, telecommunications, and services, enabling sectoral variation in disclosure and performance patterns.

Data on sustainability disclosure were collected manually from annual reports, standalone sustainability reports, and corporate websites. To ensure consistency and accuracy, financial data were obtained from company financial statements and validated using databases such as Bloomberg and Thomson Reuters Eikon. In cases of discrepancy, the original published accounts were given precedence.

3.3. Variables and Measures

The indicators selected reflect both widely accepted measures in the literature and their relevance in emerging market contexts. SR1 and SR2 were chosen to distinguish between the breadth (level) and depth (quality) of sustainability reporting, in line with prior work [16,32]. Accounting-based measures (ROA, ROE, and EPS) were preferred over market-based metrics due to the relatively lower liquidity and volatility of GCC capital markets. This choice aligns with regional reporting standards and enables a more stable comparison of corporate performance.

3.4. Sustainability Disclosure

To operationalise sustainability disclosure, two indices were developed based on prior studies [16,32]. The disclosure level (sustainability reporting index 1: SR1) was measured as a dichotomous index, indicating whether specific sustainability items were disclosed (scored 1 for presence, 0 for absence). The items encompassed environmental, social, and governance (ESG) dimensions, producing an overall score that reflects the breadth of disclosure. Disclosure quality (sustainability reporting index 2: SR2) was assessed using a weighted index to capture the depth, detail, and credibility of disclosure. To ensure replicability, the SR2 index applied a weighted scoring method based on the Global Reporting Initiative (GRI) framework, where environmental, social, and governance components were assigned equal weights. The weighting scheme for SR2 assigned scores from 0 to 3 for each item in the index: a score of 0 was given for no disclosure, 1 for minimal mention without detail, 2 for partial disclosure with limited quantitative or contextual depth, and 3 for comprehensive disclosure including quantitative metrics, targets, and external assurance. The total SR2 score for each firm was calculated by summing the item scores and normalising against the maximum possible score to ensure comparability. This approach distinguished between symbolic and substantive reporting, aligning with the GRI guidelines. This weighting scheme aligns with previous studies in GCC disclosure research [21,28] and facilitates reproducibility by providing transparent criteria for item scoring and aggregation. While this approach follows established scoring techniques [16], the authors acknowledge that such metrics may not fully capture the richness or strategic integration of sustainability disclosure, such as the presence of materiality matrices, stakeholder-specific information, or evidence of internal governance alignment.

3.5. Corporate Outcomes

Financial performance was measured using three standard accounting-based indicators: return on assets (ROA), return on equity (ROE), and earnings per share (EPS). EPS was selected for its widespread use in signalling shareholder returns, particularly among publicly listed firms. However, interpreting EPS warrants caution. It is susceptible to structural changes in share capital, such as stock splits and buybacks. It may be distorted by one-off items, affecting its comparability across firms and reporting periods. In emerging market contexts like the GCC, EPS reliability is further constrained by inconsistent accounting standards, uneven disclosure practices, and limited enforcement mechanisms. Therefore, while EPS provides insight into per-share profitability, it should be interpreted alongside other metrics, with an awareness of these contextual limitations. The combined use of ROA, ROE, and EPS enables a multifaceted assessment of operational efficiency and shareholder value, especially in environments where market-based valuation metrics such as Tobin’s Q are less stable or less accessible.

Financial reporting quality was proxied by two measures—earnings quality and value relevance—in line with established practice in emerging-market studies [15]. Earnings quality was estimated using the modified Jones model [50], which adjusts total accruals for firm-specific changes in revenues and property, plant, and equipment. Total accruals were calculated as the difference between net income and cash flows from operations. This accrual-based proxy is especially relevant in jurisdictions with weak audit assurance or limited oversight, where earnings management remains a concern.

However, recent findings reveal that auditors in the GCC often lack technological competencies, particularly in applying big data analytics, which limits their ability to detect earnings manipulation and maintain reporting accuracy [51]. This technological gap further weakens the effectiveness of earnings quality as a diagnostic tool in the region.

Value relevance was assessed using an Ohlson-type model [30], where the market value of equity was regressed on earnings per share (EPS) and book value per share. This model estimates the explanatory power of accounting information for market valuations, thus reflecting how informative financial reports are to investors. The application of this method is appropriate in the Gulf context, where thin trading volumes and inconsistent investor behaviour limit the use of direct market-based valuation methods.

Complementing this, empirical evidence from the UAE shows that cloud-based accounting systems significantly improve financial information quality, especially in terms of accuracy, accessibility, and data security [30]. These findings highlight how technological transformation and knowledge infrastructure directly enhance reporting reliability. Given the uneven digital maturity across Gulf firms, these system-level differences may partially explain the variation in value relevance and reporting quality observed in this study.

3.6. Control Variables

To account for firm-specific factors that may influence disclosure practices and corporate outcomes, three control variables were included: firm size (measured as the log of total assets), leverage (represented by the total debt-to-equity ratio), and sector classification. Prior literature identifies these as important determinants of both disclosure and financial performance [52,53].

3.7. Analytical Strategy

The analysis proceeded in several stages. First, descriptive statistics and correlation matrices were generated to examine the distribution of variables and detect potential multicollinearity. Second, regression models were estimated to test the hypothesised relationships between disclosure indices and corporate outcomes. Four main models were specified, corresponding to the study’s hypotheses:

• Disclosure level (SR1) and financial performance (ROA, ROE, EPS) [H1];
• Disclosure quality (SR2) and financial performance (ROA, ROE, EPS) [H2];
• Disclosure level (SR1) and financial reporting quality [H3];
• Disclosure quality (SR2) and financial reporting quality [H4].

Ordinary least squares regression with robust standard errors was used as the primary estimation technique to correct for potential heteroscedasticity. To address unobserved firm heterogeneity, fixed-effects models were also estimated as robustness checks. Additionally, lagged dependent variables were introduced in alternative model specifications to mitigate concerns about reverse causality. Although this approach helps to establish temporal ordering, we acknowledge that it may not eliminate endogeneity. Instrumental variable techniques, such as two-stage least squares or generalised method of moments, offer stronger causal identification but require valid instruments that are both correlated with the explanatory variables (SR1 and SR2) and uncorrelated with the error term. In this multi-country panel, such instruments could not be identified with sufficient strength. Given the limited panel length and data constraints, we did not implement instrumental variable-based estimation. We recommend that future research consider applying these methods, particularly as disclosure data become more granular and as stronger instruments are developed.

3.8. Validity and Reliability

To enhance reliability, the sustainability disclosure indices were independently coded by two researchers, achieving an intercoder agreement of over 85%. Any discrepancies were discussed and resolved through consensus, ensuring coding consistency and accuracy. Construct validity was strengthened by benchmarking the indices against GRI standards and comparing them with coding schemes from previous empirical research.

Robustness was further assessed through sensitivity analyses, including re-estimation with alternative disclosure measures and the exclusion of outliers. Results remained consistent across specifications, reinforcing confidence in the study’s internal validity and empirical soundness.

4. Results

4.1. Descriptive Statistics

Table 1. Descriptive statistics for key variables (2020–2023).

Variable	N	Mean	Std. Dev.	Min	Max
SR1 (level of disclosure)	92	0.41	0.18	0.12	0.82
SR2 (quality of disclosure)	92	0.29	0.14	0.05	0.67
ROA	92	6.21	3.85	−2.13	15.74
ROE	92	9.34	6.72	−4.50	24.81
EPS	92	1.87	1.22	0.10	4.92

presents the descriptive statistics for the 92 listed companies analysed between 2020 and 2023. The mean score for disclosure level (SR1) indicates that firms disclose some sustainability information but generally offer partial coverage of ESG dimensions. Disclosure quality (SR2) is notably lower, suggesting that few firms provide detailed, quantified information or obtain external assurance.

Financial performance indicators reveal moderate profitability, with mean ROA and ROE of 6.21% and 9.34%, respectively, though the wide range of values indicates considerable variation across firms. Earnings per share (EPS) are modest on average, again with substantial dispersion, reflecting the heterogeneous nature of the GCC corporate landscape.

These statistics highlight the variability of disclosure practices in the Arab Gulf, where many firms engage in sustainability reporting but few adopt comprehensive or high-quality approaches.

4.2. Estimation Technique

Before conducting the regression analysis, several diagnostic tests were performed to ensure the model’s robustness.

Table 2. Kolmogorov–Smirnov test for normality. p-Value > 0.05 indicates that the residuals are normally distributed.

Variable	KS Statistic	Sig. (p-Value)
Residuals (model 1: financial performance)	0.087	0.200
Residuals (model 2: financial reporting quality)	0.065	0.135

reports the results for the Kolmogorov–Smirnov test which confirmed that all variables followed a normal distribution (p > 0.05). Variance inflation factor (VIF) values were below two across all models, indicating the absence of multicollinearity. Breusch–Pagan tests were non-significant, confirming homoscedasticity of residuals.

Collectively, these diagnostics support the appropriateness of the Ordinary Least Squares (OLS) regression method for hypothesis testing.

Variance inflation factor (VIF) scores were examined to assess multicollinearity among the independent variables. All VIF values were well below the threshold of 10, with the highest VIF recorded at 2.34, indicating that multicollinearity is not a concern in either model 1 or model 2.

Pearson correlation coefficients revealed that SR1 was positively correlated with ROA (R = 0.32, p < 0.05), suggesting that firms disclosing more sustainability information tend to demonstrate stronger asset-based performance. Correlations between SR2 and financial indicators were weaker, implying that disclosure quality may play a less decisive role in influencing financial outcomes. As expected, control variables behaved as in prior studies: asset turnover correlated positively with ROA, while leverage showed a negative association with profitability measures.

The Breusch–Pagan test was used to assess heteroscedasticity in the regression residuals. As shown in

Table 3. Results of Breusch–Pagan test for heteroscedasticity. p-Values > 0.05 indicate no evidence of heteroscedasticity.

Model	Chi-Square	df	Sig. (p-Value)
Model 1	3.17	1	0.075
Model 2	2.88	1	0.090

, the results indicate homoscedasticity, satisfying the OLS assumption.

5. Results of the Regression Analysis

H1. 

Disclosure level and financial performance.

Table 4. Regression results for H1: SR1 and financial performance.

Dependent Variable	Coefficient (SR1)	Std. Error	p-Value	R2
ROA	0.174	0.072	0.021	0.19
ROE	0.228	0.088	0.014	0.23
EPS	0.051	0.049	0.291	0.11

presents the regression results for H1. The findings indicate that SR1 is positively and significantly associated with ROA (β = 0.174, p = 0.021) and ROE (β = 0.228, p = 0.014), but not with EPS (β = 0.051, p = 0.291). These results suggest that the level of sustainability disclosure enhances internal efficiency and shareholder returns, though it is not consistently reflected in market-based indicators such as EPS. Model fit statistics indicate moderate explanatory power, with R² values ranging from 0.19 to 0.23.

These findings partially support H1, indicating that disclosure level is positively associated with ROA and ROE but not with EPS.

H2. 

Disclosure quality and financial performance.

As shown in

Table 5. Regression results for H2: SR2 and financial performance. Regression results for H2: SR2 and financial performance.

Dependent Variable	Coefficient (SR2)	Std. Error	p-Value	R2
ROA	0.092	0.061	0.143	0.16
ROE	0.118	0.072	0.094	0.18
EPS	0.034	0.043	0.418	0.10

, the impact of SR2 on financial performance is weaker and less consistent. The coefficients are positive but largely insignificant. ROE exhibits a marginal relationship (β = 0.118, p = 0.094), while effects on ROA and EPS remain statistically insignificant. This suggests that, in the Arab Gulf context, stakeholders and markets may prioritise disclosure presence over its credibility or depth.

These results provide limited support for H2, suggesting that disclosure quality exerts a weaker influence on shaping financial performance than disclosure level.

H3. 

Disclosure level and financial reporting quality.

Turning to financial reporting quality,

Table 6. Regression results for H3: SR1 and financial reporting quality. Regression results for H3: SR1 and financial reporting quality.

Dependent Variable	Coefficient (SR1)	Std. Error	p-Value	R2
Reporting quality	0.087	0.049	0.078	0.13

shows that SR1 exhibits a weak but positive association with reporting outcomes. The coefficient is marginally significant (β = 0.087, p = 0.078), implying that firms disclosing more sustainability information are slightly more likely to constrain earnings management and improve reporting credibility. However, the model’s explanatory power remains modest (R² = 0.13).

These findings provide tentative support for H3, suggesting that disclosure level contributes modestly to improved financial reporting quality.

H4. 

Disclosure quality and financial reporting quality.

Finally,

Table 7. Regression results for H4: SR2 and financial reporting quality. Regression results for H4: SR2 and financial reporting quality.

Dependent Variable	Coefficient (SR2)	Std. Error	p-Value	R2
Reporting quality	0.041	0.052	0.426	0.12

shows no significant association between SR2 and financial reporting quality (β = 0.041, p = 0.426). This indicates that even when firms provide detailed or externally verified sustainability information, it does not necessarily translate into improved financial reporting quality. In the Arab Gulf, sustainability and financial reporting therefore appear to remain relatively disconnected.

This outcome provides no support for H4, reinforcing the view that disclosure quality has yet to become embedded within financial governance and reporting practices in the region.

To consolidate these results,

Table 8. Summary of hypothesised results.

Hypothesis	Description	Outcome
H1a	Level of disclosure (SR1) → ROA	Supported
H1b	Level of disclosure (SR1) → ROE	Supported
H1c	Level of disclosure (SR1) → EPS	Not supported
H2a	Quality of disclosure (SR2) → ROA	Not supported
H2b	Quality of disclosure (SR2) → ROE	Weak support (marginal)
H2c	Quality of disclosure (SR2) → EPS	Not supported
H3	Level of disclosure (SR1) → financial reporting quality	Weak support
H4	Quality of disclosure (SR2) → financial reporting quality	Not supported

summarises the extent to which the empirical evidence supported each hypothesis.

Overall, the results indicate that the disclosure level (SR1) has a stronger and more consistent influence on corporate outcomes than the disclosure quality (SR2). In relation to H1, disclosure level significantly enhances ROA and ROE, though no effect is observed for EPS. For H2, the evidence is weaker, with only marginal associations between disclosure quality and financial performance. Regarding financial reporting quality, H3 receives tentative support, while H4 is not supported.

Taken together, these findings indicate that in the Arab Gulf, disclosure matters more than its depth or credibility, reflecting the relatively early stage of maturity of regional sustainability reporting practices.

6. Discussion

The findings of this study indicate that in the Arab Gulf, the level of sustainability disclosure (SR1) exerts a stronger and more consistent influence on financial performance than the quality of disclosure (SR2). This aligns with recent GCC evidence showing that investors price the presence of disclosure as a legitimacy signal, particularly when supported by credible assurance or auditor reputation [20,38,43]. This outcome reflects the institutional realities of emerging economies, where investors and regulators tend to value disclosure signals rather than their depth or credibility. This confirms earlier findings in the GCC context [8,9] yet contrasts with evidence from developed markets [19,22], where disclosure quality is typically found to be more decisive. This contrast reinforces the argument that disclosure’s impact is contingent on institutional environments and stakeholder sophistication.

While institutional maturity partly explains the limited effect of disclosure quality (SR2), this alone does not provide a sufficient theoretical account for its weak association with performance metrics. While the fragmented regulatory environment in the GCC may limit stakeholder capacity to interpret detailed disclosures, this explanation is insufficient on its own. Another plausible factor is the underdevelopment of assurance mechanisms; without independent verification, even high-quality disclosures may lack credibility and fail to influence investor decisions. Underdeveloped assurance systems in the GCC mean that even detailed reports fail to secure incremental trust or valuation effects, making quality largely informationally inert without independent verification [28,44]. This aligns with earlier research [48], which argues that assurance is critical for transforming disclosure quality into value. Additionally, the scoring methodology for SR2 may not fully capture stakeholders’ interpretations of “quality.” Checklist-style quality indices can omit narrative coherence, forward-looking orientation, stakeholder engagement, and third-party validation, all of which shape how stakeholders interpret ‘quality’ in emerging markets [31]. While the index accounts for depth and detail, it may overlook elements such as narrative coherence, forward-looking information, or stakeholder engagement, components that investors in emerging markets may find more meaningful. Thus, measurement limitations may partly explain the weak statistical results.

From a knowledge management (KM) perspective, however, this pattern highlights a missed opportunity. Firms create knowledge by converting tacit practices into explicit routines [30]; thus, disclosure should function as a mechanism for codifying sustainability knowledge. Similarly, knowledge must be captured, organised, and disseminated to generate value [30]. In the Gulf context, disclosure remains largely symbolic, serving as an instrument of external legitimacy rather than a process for embedding sustainability knowledge into decision-making systems. The knowledge-based view of the firm positions disclosure as a potential strategic knowledge asset [27], but this capacity has not yet been realised in the region. This is consistent with recent findings, which reveal that firms that align ESG with knowledge management infrastructures are more likely to realise performance gains through innovation and adaptability [40]. This lack of integration points to a decoupling between sustainability and financial reporting, suggesting that disclosure is not yet being used as a tool for organisational learning or internal strategic alignment. The implication is that firms are failing to convert ESG information into actionable insights that can strengthen governance or drive innovation.

The insignificant SR2 effect reflects a broader issue: disclosure is not yet embedded in organisational knowledge processes. Instead of being treated as strategic inputs for performance improvement, sustainability reports serve reputational rather than operational goals. This has profound implications for the region’s ESG trajectory and suggests a maturity gap not only in institutions but also in internal firm capabilities. Studies in mature settings find that high-quality environmental responsibility is associated with better earnings quality, validating the Modified Jones approach [46], whereas GCC evidence indicates that without assurance, disclosure fails to discipline reporting behavior [44]. The absence of a statistically significant association between SR2 and financial reporting quality (H4) raises important questions about the granularity of the quality index used. It is possible that the SR2 proxy, while informed by best-practice scoring systems, does not adequately differentiate between disclosure that is genuinely strategic and disclosure that is merely detailed. This aligns with concerns raised in the literature regarding the limitations of checklist-based content analyses, which may overlook qualitative dimensions such as integration into financial governance, forward-looking orientation, or board-level oversight [54,55].

This pattern is consistent with earlier findings that firms in GCC economies often adopt sustainability disclosure strategies in response to external pressure rather than as a driver of internal strategic change [8]. The authors attribute this to institutional voids, lack of absorptive capacity, and insufficient knowledge infrastructure, which hamper the internalisation of ESG principles.

The greater influence of disclosure level than quality can be attributed to the institutional maturity of the GCC. Reporting frameworks remain fragmented, and third-party assurance is rare. Stakeholders, including investors, regulators, and the public, interpret disclosure as a signal of legitimacy, regardless of its depth or reliability. This may also explain the weaker results observed for market-based indicators such as EPS, which are more volatile and less reflective of underlying governance quality in emerging markets. In this respect, legitimacy theory complements stakeholder theory by demonstrating that disclosure often serves as a symbolic conformity with institutional norms [13,14]. This pattern does not necessarily indicate a structural transformation of institutional practices but rather an early-stage adaptation to policy and market pressures. Given the relatively short timeframe of the analysis, these findings should be interpreted as transitional signals rather than evidence of consolidated strategic shifts.

The absence of robust verification mechanisms limits the capacity of high-quality reports to generate additional trust or tangible financial benefits. Empirical evidence supports the claim that assurance mechanisms are critical for enhancing the impact of disclosure quality on financial outcomes [48]. This study builds on that argument by demonstrating that, in the absence of assurance, disclosure quality fails to create distinct value even when firms offer detailed or metric-based reporting.

The effects of disclosure are not uniform across firms. Sectoral dynamics play a crucial role: oil and gas firms face greater global scrutiny than service firms, while banks show variations between Islamic and conventional institutions [9]. In banks, cross-country GCC evidence shows that voluntary reporting can improve market legitimacy but impose short-run profitability costs, especially when disclosure is symbolic or externally pressured [42]. Investor base sophistication also matters; firms with exposure to foreign institutional investors tend to face higher expectations regarding the quality of their disclosures. Assurance mechanisms further shape perceptions; externally verified reports carry greater weight, but such practices remain uncommon in the Gulf. Consequently, institutional maturity conditions whether stakeholders value disclosure at a given level or for its quality. This reinforces the insight that, even with similar disclosure levels, the impact of sustainability reporting on performance varied widely across GCC sectors. Scholars attributed this to differences in stakeholder expectations, regulatory pressure, and the nature of ESG issues faced by each industry [56].

These findings highlight a critical dimension: while disclosure levels may be sufficient for external legitimacy, they do not guarantee internal value creation or sustainable competitiveness. The disconnect between reporting and strategy implies that many Gulf firms view sustainability disclosure as a box-ticking exercise, thereby failing to build long-term ESG capability. These results should therefore be interpreted as associative rather than strictly causal, given the limitations of the estimation design and the short observation period. Big-4 audit affiliation strengthens the disclosure-value link [20]; institutional ownership and weak enforcement shape the valuation of ESG in emerging markets, with accounting measures (ROA/ROE) responding more than Tobin’s Q [29]. Further research applying instrumental or GMM-based estimation could provide stronger causal evidence on the disclosure–performance nexus.

The results yield several practical implications. For regulators, while mandating disclosure can enhance legitimacy, long-term benefits require greater attention to disclosure quality, assurance, and harmonisation with international frameworks such as the GRI and ISSB. For boards and managers, disclosure should be reconceptualised as a knowledge management process that embeds ESG information into governance systems, decision-making structures, and organisational learning routines. For investors, the findings serve as a caution: high disclosure levels do not necessarily reflect genuine ESG integration, and sustainability reports from Gulf firms should therefore be scrutinised critically. Investors in the GCC should treat high levels of disclosure as preliminary legitimacy signals and scrutinise assurance, governance capacity, and impact-verified content before inferring strategic commitment [20,28,31].

This view is echoed by others, who argue that ESG disclosure must be strategically embedded to contribute to competitive advantage [45]. They find that when firms approach disclosure as an operational routine rather than a strategic initiative, the financial returns are negligible. GCC firms may therefore miss the transformational potential of disclosure by failing to treat it as a long-term investment in organisational capability.

This study makes three key contributions. Theoretically, it extends stakeholder and legitimacy theory by demonstrating that disclosure outcomes are context-dependent and integrates the KM perspective to position disclosure as a potential knowledge asset. Empirically, it represents one of the first multi-country analyses in the Gulf to distinguish between disclosure level and quality, examining their respective effects on financial performance and financial reporting quality. It also provides an important contrast to studies from developed markets, where disclosure quality is often found to be a stronger driver of outcomes than disclosure level, thereby adding nuance to global theories of ESG disclosure impacts. Practically, it provides actionable insights for regulators, firms, and investors in emerging markets, showing that while disclosure quantity can deliver short-term legitimacy benefits, disclosure quality must improve to ensure long-term competitiveness and governance integrity.

The findings contribute to the ongoing debate on the role of sustainability disclosure in shaping corporate outcomes. They confirm that the level of disclosure (SR1) has a more consistent impact on financial performance than disclosure quality (SR1), and that evidence of an influence on financial reporting quality remains limited. However, theoretical explanations for this must move beyond simple legitimacy signalling. The lack of effect of SR2 suggests that disclosure quality is not being interpreted as a marker of credible strategy in the GCC, likely due to weak assurance practices, limited stakeholder pressure, and misalignment with international standards. This suggests that in the Arab Gulf, disclosure primarily serves as a signal of legitimacy rather than as a deeply embedded governance or learning mechanism. The weak link between disclosure quality and financial performance diverges from much of the international literature. Studies [16,19] found that credibility and disclosure substance ultimately create financial value. Others warned that symbolic reporting undermines trust and erodes legitimacy [22]. The current study suggests that stakeholders in the Gulf are more responsive to the act of disclosure itself than to its credibility or depth. This confirms observations that identified weak institutional environments and leadership dynamics as key constraints on the effectiveness of disclosure in the region [6].

The results concerning financial reporting quality reinforce this interpretation. While disclosure level shows a marginal association with reporting quality, disclosure quality exerts no significant effect. This contrasts with findings from Nigeria [15], where sustainability disclosure was shown to reduce earnings management and enhance the credibility of reporting.

The contrast between H3 and H4 is instructive. While disclosure level (SR1) exerts a weak but detectable influence on financial reporting quality, disclosure quality (SR2) has no significant effect. This divergence raises questions about how high-quality ESG information is translated into reporting practices. Even when firms produce detailed sustainability reports, these are not systematically integrated into financial reporting logics or internal control systems. This gap reinforces the idea that disclosure in the GCC context serves more as a reputational tool than a strategic governance mechanism.

Moreover, it suggests that disclosure quality, in the absence of assurance, enforcement, or internal alignment, remains symbolic. This may explain why stakeholders do not reward such quality with greater trust or perceived reporting credibility. Future research should investigate this disconnect using qualitative methods or case studies to trace the actual use of ESG data within firms.

The absence of similar effects in the Gulf indicates that integration between sustainability and financial reporting remains limited, reflecting a decoupling of reporting practices. This misalignment between financial and non-financial reporting limits organisational learning and prevents ESG data from informing accountability or strategy. Unless disclosure becomes a foundation for decision-making, it risks remaining a symbolic tool of reputational management. Indeed, firms that implement cloud-based accounting systems in the UAE show marked improvements in reporting accuracy and efficiency [57]. The limited adoption of such systems across the Gulf may therefore help explain why high-quality sustainability disclosures are not translating into stronger financial reporting outcomes. The results suggest that digital transformation and knowledge-driven infrastructures are critical enablers of effective ESG integration. From a KM standpoint, this represents a missed opportunity; without embedding disclosure into organisational learning systems, firms are unable to translate sustainability reporting into stronger financial governance.

Empirically, this study provides novel evidence from a multi-country emerging market context, where disclosure level and quality are rarely analysed separately. By doing so, it fills a gap in the literature on the impacts of ESG reporting in institutionally fragmented environments, such as the Arab Gulf. Regulators in the region should prioritise building assurance ecosystems and mandating segmented disclosure metrics to shift reporting from symbolic to strategic. Firms, meanwhile, must treat disclosure as an internal learning system rather than an external compliance requirement by training ESG officers and aligning disclosure with decision-support tools.

In summary, while the study highlights the symbolic role of disclosure level (SR1) in securing legitimacy, it also exposes critical gaps in how disclosure quality (SR2) is perceived and operationalised. Where credibility mechanisms and capabilities are present, both SR1 and SR2 can enhance firm value [31]; absent these preconditions, SR2 effects attenuate and may even entail short-term cost penalties in bank-dominated settings [42]. Bridging these gaps requires not only institutional reforms but also a reconceptualisation of ESG disclosure as a strategic and knowledge-based function.

Limitations and Future Research

This study faces several limitations that open promising avenues for future research. First, the sample is restricted to listed non-financial firms, which introduces possible selection bias. Smaller and unlisted firms may exhibit distinct disclosure behaviours not captured in this analysis. Second, although the SR2 index was constructed using validated scoring techniques, its effectiveness as a proxy for disclosure quality may be constrained by the inherent difficulty in measuring intangible aspects of reporting. Future research could enhance measurement validity by combining quantitative indices with qualitative assessment methods, such as discourse analysis, interviews, or machine learning models that assess tone, materiality, or stakeholder focus.

Furthermore, the study covers only four years (2020–2023) and corresponds with the rise of sustainability reporting in the GCC. Future research should extend the observation window beyond four years to allow for stronger inferences about the evolution of institutional norms and the strategic integration of sustainability disclosure. The current timeframe may be too short to capture delayed effects, policy implementation cycles, or shifts in firm behaviour triggered by emerging regulations such as CSRD or ISSB standards. Additionally, the measurement of disclosure quality relies on manual content analysis, which, despite rigorous intercoder reliability checks, introduces some subjectivity. Lastly, the study does not fully address potential endogeneity arising from reverse causality between disclosure and performance.

Future research should address these limitations by extending the timeframe and exploring longitudinal effects as disclosure frameworks mature and new standards (e.g., CSRD, ISSB) are implemented. Future studies could examine whether firms that use integrated reporting or adopt enterprise risk management frameworks experience greater alignment between sustainability and financial reporting, thereby yielding differential outcomes.

Such longitudinal designs would allow researchers to trace how changes in regulation and assurance practices alter the relationship between disclosure and performance over time, thereby strengthening causal inferences. Comparative studies between developed and emerging markets could further clarify how institutional maturity influences the disclosure-performance nexus. In particular, cross-country analyses across both high- and low-governance environments would provide rich insights into how context shapes the value of disclosure quality.

Sector-specific research, particularly in banking and energy, could uncover industry-specific pressures shaping disclosure behaviour. Since these sectors face distinct stakeholder expectations and risk profiles, future studies should test whether ESG disclosure operates as a value driver in high-impact industries or merely as a legitimacy tool in low-exposure ones. Additionally, qualitative approaches such as interviews with managers, regulators, and investors would complement these findings by uncovering the organisational processes and institutional dynamics underpinning disclosure decisions. Mixed-method designs could also identify the micro-processes through which disclosure practices are interpreted, refined, and embedded within firms.

Lastly, the study does not fully address potential endogeneity arising from reverse causality between disclosure and performance. Future research could adopt longitudinal instrumental variable or Generalized Method of Moments (GMM) approaches to enhance causal inference once longer time-series data and valid instruments become available. Such extensions would enable a more rigorous assessment of whether disclosure quality drives financial performance or whether high-performing firms simply disclose more.

Future studies could also expand the KM framework by examining how disclosure routines interact with organisational learning, absorptive capacity, and innovation systems. This line of research would advance understanding of how firms transform ESG information into strategic knowledge and whether this translation enhances competitive advantage or financial reporting quality. Exploring these mechanisms empirically would strengthen the link between the knowledge-based view of the firm and the disclosure-performance relationship. Research could build on this study’s empirical contribution by incorporating panel data, structural equation modelling, or machine learning techniques to capture nonlinear relationships between disclosure dimensions and corporate outcomes. Such approaches would enable a more granular understanding of how disclosure quality evolves and what organisational capabilities trigger its financial impacts.

7. Conclusions

This study set out to examine the dual dimensions of sustainability disclosure—level and quality—and their respective impacts on financial performance and financial reporting quality in the context of the Arab Gulf. The findings present a nuanced empirical contribution to the disclosure-performance debate, challenging the conventional assumption that disclosure quality is the primary driver of corporate outcomes. Instead, this study demonstrates that in emerging markets with fragmented regulatory infrastructures, such as the GCC, disclosure level, even if symbolic, holds greater weight in shaping financial returns. This pattern does not simply reflect institutional immaturity but underscores the combined effects of weak assurance ecosystems, limited internal integration, and the methodological challenges of measuring quality in disclosure.

By distinguishing between disclosure level and quality, this study advances scholarly understanding in three important ways. First, it reveals that disclosure in the Gulf primarily functions as a legitimising signal rather than as a strategic knowledge asset. This supports legitimacy theory but exposes the current underutilisation of disclosure as a knowledge management tool, as envisioned by Nonaka, Grant, and Davenport. Second, it shows that financial reporting quality remains largely decoupled from sustainability practices, indicating that ESG disclosure has not yet penetrated the core governance mechanisms of firms in the region. Third, it provides robust, multi-country evidence from the GCC, a region underrepresented in the literature, thereby addressing a significant geographical gap in current scholarship. Practically, the findings carry significant implications for policymakers, boards, and investors. Policymakers must move beyond mandating disclosure volume and prioritise harmonisation with global standards, third-party assurance, and sector-specific reporting frameworks. Boards and senior management must view sustainability reporting not only as a compliance requirement but as a means of organisational learning and strategic int;egration. For investors, the study issues a critical warning: high volumes of disclosure in the Gulf may mask symbolic practices, requiring deeper due diligence.

Ultimately, this study highlights that disclosure outcomes are deeply conditioned by institutional context. In emerging economies such as the Gulf, disclosure will not drive financial or governance gains unless accompanied by greater institutional rigour, strategic embedding, and internal capability development. Future research must continue to deconstruct disclosure dimensions, incorporate organisational learning frameworks, and test these mechanisms in longitudinal and cross-regional contexts.