Green density and spillover effects on earnings management

Hugo Benedetti, Mohammad A. Karim, Sayan Sarkar and Andrew C. Spieler

International Review of Economics & Finance, 2025, vol. 100, issue C

Abstract: We examine the link between earnings management and the environmental ratings' geographic spillover effect. Additionally, we explore the potential moderating impact of regional cultural traits like religiosity and political leanings. Using a sample of 18,012 firm-year observations, of 2319 publicly traded US firms, from 2010 to 2022, we find a negative relationship between green density and real activity-based earnings management such as abnormal production costs, abnormal discretionary expenses, and a combined measure of real activity-based earning management. These results hold even after including cultural and social standards of a geographic area such as religiosity and political affiliation.

Keywords: Environmental rating; Geographic spillover; Green rating; Green density; Earnings management (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:100:y:2025:i:c:s1059056025002436

DOI: 10.1016/j.iref.2025.104080

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