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Corporate environmental disclosure, corporate governance and earnings management

Nan Sun · Aly Salama · Khaled Hussainey · Murya S. Habbash

362 citations0/0 files storedManagerial Auditing Journal

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Auditing, Earnings Management, Governance Corporate Social Responsibility Reporting Corporate Governance and Financial Management

Abstract

Purpose The purpose of this paper is to examine the association between corporate environmental disclosure (CED) and earnings management (EM) and the impact of corporate governance (CG) mechanisms on that association. Design/methodology/approach The paper uses performance‐matched discretionary accruals (DA) as a measure of EM. The paper also uses ordinary least square regression with robust standard errors to examine the association between CED and EM for a sample of 245 UK non‐financial firms for the financial year ended on March 2007. Three different theoretical frameworks are used to identify the expected association between CER and EM. These include: signalling, agency and stakeholder‐legitimacy theories. Findings The paper finds no significant statistical association between various measures of DA and environmental disclosure. The paper also finds that some CG attributes affect the relationship between CER and EM. Practical implications The result suggests that UK corporate managers are not using environmental disclosure as a technique to reduce the probability that public policy actions will be taken against their companies. Originality/value Since most empirical research is limited to the US setting, this paper provides a novel contribution to the existing literature, as one of the first to examine this issue in the UK.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1970EFFICIENT CAPITAL MARKETS: A REVIEW OF THEORY AND EMPIRICAL WORK*1993The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems 1991Earnings Management During Import Relief Investigations 2005Performance matched discretionary accrual measures 1995Detecting Earnings Management.2003Earnings management and investor protection: an international comparison 1999A Review of the Earnings Management Literature and Its Implications for Standard Setting

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2017Corporate social responsibility and financial performance relationship: a review of measurement approaches 2013Effect of Financial Reporting Quality on Sustainability Information Disclosure 2016Mandatory Corporate Social Responsibility (CSR) Reporting and Financial Reporting Quality: Evidence from a Quasi-Natural Experiment 2011Disclosure of Corporate Social Responsibility and Environmental Management: Evidence from China 2021Corporate environmental disclosure and earnings management—The moderating role of corporate governance structures

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