The relationship between corporate sustainability performance and earnings management: evidence from emerging East Asian economies

Abstract

Purpose: This study aims to investigate the relationship between corporate sustainability performance and earnings management in emerging East Asian economies. Design/methodology/approach: The authors base on the triple bottom line approach to measure corporate sustainability performance. In terms of earnings management, two models are applied to detect real activities manipulation and discretionary accruals. The authors use panel data analysis of 410 listed non-financial firms in emerging East Asian economies from 2016 to 2020 that are collected from the Thomson Reuters Eikon database. Findings: The authors find a negative influence of corporate sustainability performance on real activities manipulation and discretionary accruals. The findings highlight the long-term perspective of sustainable development strategies in relation to earnings management. The authors conclude that sustainable firms in emerging East Asia are less likely to engage in earnings management. Practical implications: The study would be of interest to investors who need more detailed assessments of financial reporting quality to facilitate their investment decision-making and to policymakers who need more understanding of business practices and reporting behaviors of East Asian firms. Originality/value: The study has shed light on the role of corporate sustainability performance in constraining earnings management and the role of corporate ethics in providing transparent and reliable financial reporting in emerging East Asian economies.