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Linking earnings management and environmental, social, and corporate governance performance : a cross-country study
Thesis (MCom)--Stellenbosch University, 2024.
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| Language: | en_ZA |
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Stellenbosch : Stellenbosch University
2025
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| _version_ | 1867613787767439360 |
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| access_status_str | Open Access |
| author | Hickman, Nina Anne |
| author2 | De Vries, A. |
| author_browse | De Vries, A. Hickman, Nina Anne |
| author_facet | De Vries, A. Hickman, Nina Anne |
| author_sort | Hickman, Nina Anne |
| collection | Thesis |
| dc_rights_str_mv | Stellenbosch University |
| description | Thesis (MCom)--Stellenbosch University, 2024. |
| format | Thesis |
| id | oai:scholar.sun.ac.za:10019.1/131673 |
| institution | Stellenbosch University (South Africa) |
| language | en_ZA |
| last_indexed | 2026-06-10T12:41:42.083Z |
| license_str | Other — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from SUNScholar — Stellenbosch University Repository |
| publishDate | 2025 |
| publishDateRange | 2025 |
| publishDateSort | 2025 |
| publisher | Stellenbosch : Stellenbosch University |
| publisherStr | Stellenbosch : Stellenbosch University |
| record_format | dspace |
| source_str | SUNScholar — Stellenbosch University Repository |
| spelling | oai:scholar.sun.ac.za:10019.1/131673 Linking earnings management and environmental, social, and corporate governance performance : a cross-country study Hickman, Nina Anne De Vries, A. Viviers, S. Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Business Management. Earnings management Accrual basis accounting Social responsibility of business Environmental responsibility Sustainable development UCTD Thesis (MCom)--Stellenbosch University, 2024. ENGLISH SUMMARY: Investors use financial and environmental, social, and corporate governance (ESG) reports of listed companies to make informed investment and active ownership decisions. Investors assume that published financial reports are accurate proxies of firm performance. Managers may, however, engage in earnings management (EM) to misconstrue actual firm performance, giving the false appearance of financial prosperity. Some managers also engage in greenwashing to misrepresent their firm’s true ESG impact and activities. This misrepresentation could have dire effects on investors who value sound ESG performance. A comprehensive literature review revealed contrasting results pertaining to the EM-ESG performance relationship. Several studies uncovered that investors regard a high ESG score as indicative of a responsible firm, one which is unlikely to falsify their financial statements. In other words, the assumption may be that firms with high ESG performance would not engage in EM. Other studies reveal the opposite about the EM-ESG performance relationship. It further appears that most academics consider only one type of EM, accruals-based earnings management (AEM), and neglect the second type, real earnings management (REM) due to time-constraints. Most prior research additionally seemed to be based on developed economies, as opposed to developing economies, or cross-country studies. Differences in legislation may affect EM and ESG performance. This study, therefore, investigated the EM-ESG performance relationship over the period 2015 to 2021, considering both AEM and REM, in different economic contexts. The sample comprised three developed (Australia, Italy, and the United Kingdom) and three developing (Brazil, Malaysia, and South Africa) economies. Firm size, growth, leverage, and Rule of Law were included as control variables to enhance the robustness of the results. All firm-related secondary quantitative data were gathered from Bloomberg, a reputable and reliable data provider. The six countries’ Rule of Law data were obtained from The World Justice Project (2024) website. Inferential tests uncovered significantly rising trends in both AEM and REM, a concerning result that implies earnings quality reduced over the research period. ESG performance and the individual ESG-pillars increased significantly over the study period, a positive signal for responsible investors. The researcher further uncovered that REM was greater in developing economies, while ESG performance, E-performance, and G-performance were higher in developed economies. In addition, the Rule of Law scores, included as a country-level control variable, were significantly higher in developed economies than in developing economies. These findings emphasise the need for all investors to consider the economic development of the countries in which companies are listed, before investing in them. No significant relationship was found between EM and ESG performance, though empirical evidence highlighted a statistically significant negative relationship between AEM and S-performance. The study thus revealed that improving S-performance may have signalled decreasing AEM levels and thus increasing earnings quality. The empirical results were interpreted using the agency, signalling, and stakeholder theory. Prospect theory, a relatively new behavioural theory used in the EM and ESG performance literature, was also included in this study. Based on the findings of the study, current and prospective investors are advised to conduct deep research on the financial and ESG reporting of companies, and on the economic development of the countries in which these companies are listed. Policy makers should attempt to further strengthen financial and ESG reporting regulations, particularly in developing economies, to protect stakeholders from AEM, REM, and greenwashing. The concerning rising trends imply that managers may not fully comprehend the possible consequences of EM, or the benefits of ESG initiatives. Business educators and executive training providers should include EM and sustainability in curricula, while companies could provide employees with workshops on the topics. These courses may reduce the number of managers who underestimate the negative outcomes associated with managing earnings and greenwashing. AFRIKAANSE OPSOMMING: Beleggers gebruik finansiele verslae van genoteerde maatskappye asook hul verslae aangaande omgewings-, sosiale- en korporatiewe bestuur (ESG) om ingeligte beleggings- en aktiewe eienaarskapbesluite te neem. Beleggers aanvaar dat gepubliseerde finansiele verslae akkurate aanduidings van korporatiewe prestasie verskaf. Bestuurders mag egter verdienstebestuur (EM) toepas om ʼn ware finansiele prestasie te verdoesel. Sommige bestuurders is ook betrokke by groenwassery wat ʼn wanvoorstelling van hul maatskappy se ware ESG-impak en -aktiwiteite tot gevolg het. Hierdie wanvoorstelling kan ernstige gevolge inhou vir beleggers wat waarde heg aan goeie ESG-prestasie. 'n Omvattende literatuuroorsig het teenstrydende resultate getoon ten opsigte van die verhouding tussen EM en ESG-prestasie. Verskeie studies wys daarop dat beleggers 'n hoe ESG-telling gebruik as 'n aanduiding van ʼn maatskappy se vlak van verantwoordbaarheid en riglyn dat hulle waarskynlik nie hul finansiele state sal vervals nie. Met ander woorde, die aanname kan gemaak word dat maatskappye met hoe ESG-prestasie nie by EM praktyke betrokke sal wees nie. Ander studies toon die teenoorgestelde aangaande die EM-ESG prestasieverhouding. Dit blyk verder dat meeste akademici slegs een tipe EM, voorsienings-gebaseerde verdienstebestuur (AEM), oorweeg en die tweede tipe, reele verdienstebestuur (REM) oorsien weens tydsbeperkings. Meeste vorige navorsing was ook gebaseer op ontwikkelde ekonomiee, in teenstelling met ontwikkelende ekonomiee, of studies wat oor verskeie lande strek). Verskille in wetgewing kan EM- en ESG-prestasie beinvloed. Hierdie studie het dus die EM-ESG prestasieverhouding ondersoek, met inagneming van beide AEM en REM, in verskillende ekonomiese kontekste, oor die tydperk 2015 tot 2021. Die steekproef het drie ontwikkelde ekonomiee (Australie, Italie en die Verenigde Koninkryk) en drie ontwikkelende ekonomiee (Brasilie, Maleisie en Suid-Afrika) ingesluit. Ten einde die robuustheid van die resultate te verbeter was die grootte, groei en hefboomwerking van maatskappye, asook die Oppergesag van die Reg (Rule of Law), ingesluit as beheerveranderlikes. Alle maatskappy verwante sekondere kwantitatiewe data is verkry van Bloomberg, 'n erkende en betroubare dataverskaffer. Die ses lande se Oppergesag van die Reg waardes is verkry vanaf ‘The World Justice Project’ (2024) webtuiste. Inferensiele toetse het beduidende stygings in beide AEM en REM uitgewys. Hierdie resultaat is kommerwekkend aangesien dit impliseer dat die kwaliteit van maatskappye se verdienste oor die navorsingsperiode verswak het. ESG-prestasie en die individuele ESG-aspekte het beduidend toegeneem wat 'n positiewe teken is vir verantwoordbare beleggers. Die navorser het verder gevind dat REM groter was in ontwikkelende ekonomiee, terwyl ESG-prestasie, E-prestasie en G-prestasie hoer was in ontwikkelde ekonomiee. Verder is gevind dat die Oppergesag van die Reg tellings, ingesluit as ʼn land-vlak beheerveranderlike, beduidend hoer was in ontwikkelende ekonomiee as in ontwikkelende ekonomiee. Hierdie bevindinge beklemtoon die noodsaaklikheid dat beleggers die ekonomiese ontwikkeling van die lande waarin maatskappye genoteer is, oorweeg voordat hulle bele. Geen beduidende verwantskap is gevind tussen EM- en ESG-prestasie nie. Die empiriese resultate het wel 'n statisties beduidende negatiewe verhouding tussen AEM en S-prestasie bevestig. Die studie het dus aan die lig gebring dat die verbetering in S-prestasie moontlik kon dui op dalende AEM-vlakke, en dus die verhoging in die kwaliteit van maatskappye se verdienste. Die empiriese resultate is geinterpreteer met behulp van die agentskap-, sein- en belangegroepteorie. Vooruitsigteorie, 'n relatiewe nuwe gedragsteorie in die EM- en ESG-prestasieliteratuur, is ook in ag geneem. In die lig van die studie se bevindinge word huidige en voornemende beleggers aanbeveel om in-diepte navorsing te doen oor die finansiele en ESG-verslagdoening van maatskappye, asook die ekonomiese ontwikkeling van die lande waarin hierdie maatskappy genoteer is. Verder moet beleidmakers poog om die regulasies vir finansiele en ESG-verslagdoening verder te versterk, veral in ontwikkelende ekonomiee, ten einde belangegroepe te beskerm teen AEM, REM en groenwassery. Kommerwekkende stygings dui daarop dat bestuurders moontlik nie die gevolge van EM, of die voordele van ESG-inisiatiewe, ten volle begryp nie. Die verskaffers van besigheid- en bestuursopleiding moet EM en volhoubaarheid in kurrikulums insluit, terwyl maatskappye werkswinkels aan hul werknemers kan aanbied oor hierdie onderwerpe. Hierdie opleiding kan die aantal bestuurders wat die potensiele negatiewe uitkomste van verdienstebestuur en groenwassery onderskat, verminder. Masters 2025-02-05T08:42:11Z 2025-02-05T08:42:11Z 2024-12 Thesis https://scholar.sun.ac.za/handle/10019.1/131673 en_ZA Stellenbosch University xv, 176 pages : illustrations, includes annexures application/pdf Stellenbosch : Stellenbosch University |
| spellingShingle | Earnings management Accrual basis accounting Social responsibility of business Environmental responsibility Sustainable development UCTD Hickman, Nina Anne Linking earnings management and environmental, social, and corporate governance performance : a cross-country study |
| title | Linking earnings management and environmental, social, and corporate governance performance : a cross-country study |
| title_full | Linking earnings management and environmental, social, and corporate governance performance : a cross-country study |
| title_fullStr | Linking earnings management and environmental, social, and corporate governance performance : a cross-country study |
| title_full_unstemmed | Linking earnings management and environmental, social, and corporate governance performance : a cross-country study |
| title_short | Linking earnings management and environmental, social, and corporate governance performance : a cross-country study |
| title_sort | linking earnings management and environmental social and corporate governance performance a cross country study |
| topic | Earnings management Accrual basis accounting Social responsibility of business Environmental responsibility Sustainable development UCTD |
| url | https://scholar.sun.ac.za/handle/10019.1/131673 |
| work_keys_str_mv | AT hickmanninaanne linkingearningsmanagementandenvironmentalsocialandcorporategovernanceperformanceacrosscountrystudy |