Impact of earnings management on esg: evidence from india

Abstract

Background: In recent year concerns about financial reporting transparency have emerged due to earnings management practices. At the same time ESG scores are becoming benchmark to assess corporate sustainability practices. It becomes important to understand how these aspects are interrelated in Indian landscape where the ownership is concentrated and regulatory aspects are evolving. Purpose: The study aims to investigate the impact of Earnings management on ESG scores of Indian companies. Design/Methodology: The study has a sample frame of 569 Indian company excluding financial companies listed on Bombay Stock Exchange (BSE). ESG performance is proxied by ESG score from Refinitiv, Earnings management is proxied by Jones, Modified Jones and Kothari model of Earnings management. Fixed Effect Regression model has been deployed to test the objectives of the study. Findings: The study gave the result that earnings management has negative and significant impact on the ESG scores of the companies. All the control variables apart from promoter holding showed insignificant relation. Promoter holding showed positive and significant relation with ESG score. Originality/Value: It is first of its kind to explore the impact of Earnings management on ESG scores in Indian firms. Research Implication: The study is important for the policy makers as well as investor and other business stakeholders. It will help them to make informed decisions. It will also help the firms to adopt better sustainability and financial reporting practices.