Does Good Corporate Governance Moderates the Relationship Between Corporate Sustainability Reporting and Real-Based Earnings Management? Insights from Emerging Markets
Muhammad Safdar(a,b*), Sadiq Shahid (b), Saadia Kanwal (c)

(a)Fakultas Ekonomi dan Bisnis, Universitas Airlangga, Surabaya, Indonesia
(b)Department of Commerce, Bahauddin Zakariya University, Multan, Pakistan
(c) Department of Business Administration, University of Sahiwal, Sahiwal, Pakistan

Abstract

Purpose - The aim of this paper is to examined whether the good corporate governance (CG) mechanisms, like (board size, board independence, and institutional ownership) moderate the relationship between corporate sustainability reporting (CSR) and real-based earning management. The main argument of this paper is that good corporate governance (CG) can be used as a mitigating mechanism for weaken the negative relationship between CSR and real-based earning management.
Design/methodology/approach - the Ordinary Least Squares (OLS) regression was employed to examine the relationship within a sample of 648 firm-year observations. The hypotheses were tested using panel data from 48 publicly listed firms in Pakistan and 60 firms in Malaysia, covering the period from 2014 to 2022. The regression model was used to estimate coefficient of real-based earning management (EM).
Findings - The results showed a positive, significant and negative, significant relationship of corporate sustainability reporting (CSR) with earning management (EM) like (real-based EM). A finding also reveals that board size, board independence and institutional ownership significantly moderate CSR and real-based EM relationship.
Research limitations/implications - The empirical results of our study form a solid foundation for the policymakers and the others stakeholders^ decisions in investing and or establishing the policies.
Originality/value - Our study provides the empirical evidence on relationship between corporate sustainability reporting (CSR) and real-based EM in Pakistan and Malaysia - a developing country with non-legal requirement on corporate sustainability reporting. Furthermore, the study emphasizes moderating role of good corporate governance (GCG) like, board size, board independence, and institutional ownership on the relationship between corporate sustainability reporting (CSR) and real-based EM.

Keywords: Good Corporate Governance, Board Size, Board Independence, Institutional Ownership, Corporate Sustainability Reporting, Real-Based Earnings Management, Agency Theory, Stakeholders Theory

Topic: Sustainability accounting