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Environmental, social and governance performance and earnings management – The moderating role of law code and creditor's rights

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  • Pathak, Rajesh
  • Gupta, Ranjan Das

Abstract

This study examines whether environmental, social, and governance (ESG) engagement affects firms’ earnings management (EM) behavior in a multicountry set up. Employing the Tobit and panel regression framework and co`nsidering performance-matched measure of EM, we show that ESG performance substantially reduces opportunistic firms’ EM behavior. Moreover, the civil law code and superior credit rights negatively moderate the ESG–EM relationship. Empirical findings are robust and survive the use of alternative methodology and endogeneity test.

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  • Pathak, Rajesh & Gupta, Ranjan Das, 2022. "Environmental, social and governance performance and earnings management – The moderating role of law code and creditor's rights," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612322001453
    DOI: 10.1016/j.frl.2022.102849
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    Cited by:

    1. Sun, Weizheng & Chen, Shuning & Jiao, Yuqing & Feng, Xu, 2024. "How does ESG constrain corporate earnings management? Evidence from China," Finance Research Letters, Elsevier, vol. 61(C).
    2. Han, Wei & Wu, Di, 2023. "Internationalization and earnings management: Evidence from China," Finance Research Letters, Elsevier, vol. 53(C).
    3. Huang, Jun & Li, Yun & Han, Feifei, 2024. "Walk well and talk well: Impact of the consistency of ESG performance and disclosure on firms’ stock price crash risk," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 1154-1174.

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    More about this item

    Keywords

    Earnings management; ESG performance; Legal origin; Creditors’ rights;
    All these keywords.

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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