The Impact of ESG Performance on Earnings Management
REFORM
LIU Yan-xia CAO Yu-qi LI Bin
Abstract:
The proposal of the double carbon goal requires speeding up the construction of green low-carbon circular development economic system. As an evaluation standard which focuses on corporate environment, social responsibility, and corporate governance, the ESG performance of listed companies has become an important factor affecting the sustainable development of enterprise. This paper takes sample enterprise with ESG rating in Sino-Securities Index from 2010 to 2022 to explore the influence of ESG performance on earnings management. Through the empirical test we can conclude the following results: ESG performance has a significant negative impact on corporate earnings management. The mechanism test shows that ESG performance inhibits earnings management by easing the agency conflicts and strengthening external supervision. The heterogeneity test shows that ESG performance of corporates with lower internal control quality and less media attention has a more significant negative impact on earnings management. After distinguishing the direction of earnings management, our studies show that ESG performance has negative impact on upward earnings management and real earnings management in two different directions, but has no significant effect on downward accrual earnings management. This study clarifies the influence and mechanism of ESG performance on earnings management behavior of enterprises, and provides empirical evidence and theoretical reference for improving ESG performance of enterprises, maintaining the order of capital market, and accelerating the green economic transformation. Key words: ESG performance曰earnings management曰agency cost曰analyst following