The bidirectional relationship between ESG performance and earnings management: Empirical evidence from Germany
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In: Journal of Global Responsibility, Vol. 10, No. 4, 23.10.2019, p. 322-338.
Research output: Journal contributions › Journal articles › Research › peer-review
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RIS
TY - JOUR
T1 - The bidirectional relationship between ESG performance and earnings management
T2 - Empirical evidence from Germany
AU - Velte, Patrick
PY - 2019/10/23
Y1 - 2019/10/23
N2 - Purpose: This study aims to focus on environmental, social and governance (ESG) performance as a whole and individually in its three pillars and their influence on earnings management. Design/methodology/approach: Companies listed on the German Prime Standard (DAX30, TecDAX and MDAX) for the business years 2011-2017 (548 firm-year observations) are included in the empirical quantitative study. A correlation and regression analysis is conducted to analyze the impact of ESG performance as determined by the Asset4 database of Thomson Reuters on accruals-based earnings management (AEM) and real earnings management (REM). Findings: ESG performance has a negative influence on AEM but not on REM. Moreover, by dividing the three different factors of ESG performance, governance performance has the strongest negative impact on AEM in comparison to environmental and social performance. This study also suggests a bidirectional relationship between ESG performance and earnings management. Originality/value: The analysis makes a key contribution to research as the link between ESG performance and their three components and earnings management are analyzed for the German two-tier system for the first time. Corporate practice, regulators and researchers should recognize that ESG performance and financial reporting should be discussed together.
AB - Purpose: This study aims to focus on environmental, social and governance (ESG) performance as a whole and individually in its three pillars and their influence on earnings management. Design/methodology/approach: Companies listed on the German Prime Standard (DAX30, TecDAX and MDAX) for the business years 2011-2017 (548 firm-year observations) are included in the empirical quantitative study. A correlation and regression analysis is conducted to analyze the impact of ESG performance as determined by the Asset4 database of Thomson Reuters on accruals-based earnings management (AEM) and real earnings management (REM). Findings: ESG performance has a negative influence on AEM but not on REM. Moreover, by dividing the three different factors of ESG performance, governance performance has the strongest negative impact on AEM in comparison to environmental and social performance. This study also suggests a bidirectional relationship between ESG performance and earnings management. Originality/value: The analysis makes a key contribution to research as the link between ESG performance and their three components and earnings management are analyzed for the German two-tier system for the first time. Corporate practice, regulators and researchers should recognize that ESG performance and financial reporting should be discussed together.
KW - Management studies
KW - financial reporting
KW - ESG performance
KW - earnings management
KW - Corporate governance
KW - Stakeholder theory
KW - Accruals
UR - http://www.scopus.com/inward/record.url?scp=85083633105&partnerID=8YFLogxK
U2 - 10.1108/JGR-01-2019-0001
DO - 10.1108/JGR-01-2019-0001
M3 - Journal articles
VL - 10
SP - 322
EP - 338
JO - Journal of Global Responsibility
JF - Journal of Global Responsibility
SN - 2041-2568
IS - 4
ER -