Environmental, social, and governance (ESG) disclosure, earnings management and cash holdings: Evidence from a European context

Isam Saleh, Malik Abu Afifa and Abdallah Alkhawaja

Business Ethics, the Environment & Responsibility, 2025, vol. 34, issue 2, 295-308

Abstract: The primary objective of this research is to examine the potential influence of environmental, social, and governance (ESG) disclosure on cash holdings. Additionally, the study explores the role of earnings management (EM) practices as a mediating factor in this relationship. The sample comprises 797 companies listed on financial markets across 19 European countries, and the data spans from 2013 to 2019. The outcomes indicate a significant negative correlation between ESG disclosure and cash holdings, implying that ESG performance can be used by management to resolve disputes with stakeholders. The outcomes further indicate that the existence of EM practices partially mediates the link between ESG disclosure and cash holdings. Moreover, they are robust by substitute cash holdings specification, three distinct initiatives of ESG disclosure (i.e., environment, social, and governance), and a two‐stage least squares assessment. Therefore, the findings document that nonfinancial reporting in the form of ESG disclosure can assist in controlling agency conflict, leading to better valuations of company performance by stakeholders.

Date: 2025
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https://doi.org/10.1111/beer.12650

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Persistent link: https://EconPapers.repec.org/RePEc:wly:buseth:v:34:y:2025:i:2:p:295-308

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