Carbon emission disclosure and earnings management: ethical behaviour or opportunism motivation?

Purpose - This study aims to investigate the relationship between carbon emission disclosure and earnings management within Indonesian firms. The authors use the stakeholder theory and agency theory frameworks to explain this relationship. Design/methodology/approach - Panel data of Indonesian listed firms between 2016 and 2021 are used in this study. Data are analysed using fixed effects with robust standard errors. Findings - Firms disclosing carbon emission-related information exhibit less absolute discretionary accruals. This finding implies that these firms are less likely to engage in unethical financial reporting practices, such as earnings management. This finding is also confirmed through the robustness check and endogeneity tests. Practical implications - The findings of this study can be used when formulating policy initiatives and regulations to promote carbon emission disclosure practices within Indonesian firms. Originality/value - To the best of the authors’ knowledge, this study is the first to examine the effect of carbon emission disclosure in sustainability reports on earnings management amid the sustainability reporting requirement period. It provides empirical evidence that carbon emission disclosure is considered an ethical practice in an emerging country.