The Impact of ESG Performance on Earnings Management From a Long‐Term Perspective: Evidence From China

Junjun Liu, Xiao Yu, Jiangxin Hu and Jiangshui Ma

Corporate Social Responsibility and Environmental Management, 2025, vol. 32, issue 6, 7510-7527

Abstract: In recent years, the impact of Environmental, Social, and Governance (ESG) on financial disclosure practices has drawn growing attention. While the bidirectional relationship between ESG performance and earnings management is well‐documented in the literature, limited research has explored this dynamic relation from a long‐term perspective. Addressing this gap, this study explores how ESG performance influences earnings management behavior, emphasizing its implications for sustainable corporate value. Using data from Chinese publicly listed firms between 2015 and 2022, the study investigates the effect of ESG performance on both accrual‐based and real earnings management. It further examines managerial myopia as a mediating mechanism and regional marketization as a moderating factor. The empirical results show that stronger ESG performance significantly reduces both types of earnings management. ESG also mitigates managerial myopia, reinforcing the alignment of corporate actions with long‐term goals. The moderating analysis reveals that ESG's mitigating effect on real earnings management is stronger in regions with higher levels of marketization. Among ESG sub‐dimensions, social and governance dimensions have a significant influence in both accrual and real earnings management. By reframing the relationship between ESG performance and earnings management from a long‐term perspective, this study offers significant theoretical contributions and practical implications for corporate governance in emerging markets.

Date: 2025
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https://doi.org/10.1002/csr.70094

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Persistent link: https://EconPapers.repec.org/RePEc:wly:corsem:v:32:y:2025:i:6:p:7510-7527

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