Articlegold2023

Real earnings management and ESG disclosure in emerging markets: The moderating effect of managerial ownership from a social norm perspective

Tingli Liu · Aya Abdelbaky · Ahmed A. Elamer · Mohamed Elmahgoub

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

Abstract

Drawing on social norm theory, this study delves into the nexus between real earnings manipulation (REM) and Environmental, Social, and Governance (ESG) disclosure within Egypt's emerging capital market. By analyzing data from the S&P/EGX ESG index (2013-2018) through a two-stage regression analysis, we unearth a noteworthy pattern: heightened REM practices correspond with reduced tendencies for ESG sustainability disclosure. Notably, this association is moderated by managerial ownership, which diminishes the negative linkage between REM and ESG transparency. A unique cultural insight emerges, revealing that religiously-aligned firms leverage REM as a risk-mitigation mechanism, leading to curtailed ESG disclosures. Our findings cast a spotlight on a possible managerial tilt towards short-term gains, often overshadowing long-term sustainability imperatives, especially in religiously influenced contexts. As we advance understanding of REM-ESG dynamics in religious emerging markets, our study highlights the pressing need for enhanced sustainability consciousness and accountability in these regions.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1995Managing Legitimacy: Strategic and Institutional Approaches 1988Management ownership and market valuation 2005The economic implications of corporate financial reporting 2004Social Influence: Compliance and Conformity 2003Earnings Management through Real Activities Manipulation 1996Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*2007Putting the S back in corporate social responsibility: A multilevel theory of social change in organizations

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