What factors contribute to the relationship between earnings quality and ESG disclosure?
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The relationship between earnings quality and ESG disclosure is influenced by various factors. Opportunistic behaviors in earnings announcements, such as timing and disclosure practices, are negatively associated with ESG performance, indicating a link between managerial opportunism and ESG quality . Firms engaging in environmental reporting practices tend to enhance earnings quality to attract financing, with environmental disclosure and debt positively affecting earnings persistence . Financial health, governance, and earnings management play roles in determining financial reporting quality for ESG firms, with ethical behavior observed in earnings management practices . ESG performance acts as an efficient mitigating tool for earnings management practices in US banks, particularly through the governance and social pillars . The EU directive on non-financial reporting regulations positively impacts the quantity and quality of ESG disclosures, enhancing the association between ESG disclosures and earnings risk for European firms .
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| Papers (5) | Insight |
|---|---|
| Earnings quality and ESG disclosure are linked through managerial opportunism behaviors like timing of earnings announcements, which can indicate lower ESG performance and reporting reliability. | |
7 Citations | The European Union directive on non-financial reporting regulations positively impacts the quantity and quality of ESG disclosures, enhancing the association between ESG disclosures and firms' earnings risk. |
| The governance and social pillars of ESG performance are key factors that contribute to mitigating earnings management practices in US commercial banks, enhancing earnings quality. | |
| Financial health negatively influences earnings quality in ESG firms listed in China, while governance and earnings management do not significantly affect it. Business outlook changes have no impact on these relationships. | |
| Environmental sustainability disclosure and indebtedness positively impact earnings quality by enhancing transparency and financial reporting, influencing earnings persistence, and attracting investors and creditors for funding. |
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What is esg disclosure?5 answersESG disclosure refers to the practice of companies voluntarily disclosing information on environmental, social, and governance (ESG) parameters. Companies disclose their performance on ESG datapoints for two main reasons: to gain the trust of stakeholders through increased transparency and to comply with regulations imposed by governments and investment houses. ESG criteria have gained attention from consumers and investors, shaping the behavior and choices of enterprises, investors, and consumers. Over 80 countries have introduced sustainability reporting instruments that encourage or mandate corporate organizations to disclose their ESG commitments. However, mandatory disclosure does not necessarily increase the average quality of filed reports. The relationship between external stakeholders and ESG disclosure remains ambiguous, both theoretically and empirically. ESG disclosure is of great significance in promoting the green development of industries and achieving sustainability goals.
How do ESG ratings affect earning management?5 answersESG ratings have been found to have an impact on earnings management. Companies with higher ESG scores tend to engage in less earnings management and tax avoidance practices. Specifically, the environmental (Env) and social (Soc) components of ESG have shown a significant negative correlation with earnings management and tax avoidance, indicating that companies that actively engage in environmentally and socially responsible activities are less likely to engage in unethical actions such as earnings manipulation. On the other hand, the governance (Gov) component of ESG does not show a significant relationship with earnings management and tax avoidance. These findings suggest that ESG ratings can serve as a factor for sustainable management and that companies with higher ESG scores are more likely to have reliable financial information.