An empirical study on the bidirectional association between ESG performance and earnings management in southeast Asia

Abstract

This study examines the association between Earnings Management (EM) and environmental, social, and governance (ESG) performance. 289 companies incorporated in Thailand, Malaysia, Indonesia, Singapore, the Philippines, and Vietnam between 2014 and 2021 are utilized as the final sample. Most of the financial data were taken from Asset4 by Thomson Reuters, Capital IQ, and Bloomberg; a few variables were collected manually from company reports and company websites. The hypothesis was tested using panel data regression analysis with a fixed-effect method. This study shows that ESG performance (ESGP) is positively significant to Accruals-based Earnings Management (AEM) and negatively significant to Real Earnings Management (REM). With respect to the bidirectional effect, this study shows that AEM is positively linked to ESG performance, but REM is negatively related to ESG performance. Therefore, ESGP and EM have a perfect bidirectional relationship in Southeast Asia. This study fills the gap in research on ESG performance and earnings management in Southeast Asia while assisting policymakers and companies in prioritizing genuine sustainability practices in the region.