Corporate Environmental Information Disclosure and Earnings Management in China: Ethical Behaviour or Opportunism Motivation?

Abstract

China has entered a new stage of high-quality economic development, which puts forward in-depth requirements for environmental protection. Companies in heavily polluting industries are required to disclose environmental information. Fulfilling environmental responsibilities and disclosing this information may be either a responsible moral act or an opportunistic act. Taking listed companies in China’s heavily polluting industries from 2009 to 2020 as a sample, this study examines the economic consequences of enterprise environmental information disclosure (EID) from the earnings management (EM) perspective, as an external representation of ‘ethical behaviour’ and ‘opportunism motivations’ of EID and considers the effects of internal management competency and operating environment volatility. Findings include: (1) EID can restrain EM and support the ‘ethical behaviour’ motivation of EID. (2) Compared with the ‘soft disclosure’ of environmental information, the effect of ‘hard disclosure’ on EM is more obvious. (3) Greater management competency can strengthen the EM governance role of EID, while greater environmental uncertainty weakens this mechanism. (4) EID in enterprises in a mature period, state-owned, western regions, or low public environmental concern areas show an inhibitory effect on EM. Furthermore, its moralistic tendencies are more obvious compared with enterprises in growth or recession periods, non-state-owned, eastern regions, and those with high public environmental concerns.