The Moderating Role of ESG on the Impact of Earnings Management, Tax Management, and Value Relevance
Mujennah, Heru Tjaraka

a) STIEI Banjarmasin, South Kalimantan and Universitas Airlangga, Faculty of Economic and Bussiness, East Java Surabaya *mujennah-2022[at]feb.unair.ac.id

b) Universitas Airlangga, Faculty of Economic and Bussiness, East Java Surabaya *Heru_tjaraka[at]feb.unair.ac.id

Abstract

Research Objective: This study aims to investigate the moderating role of Environmental, Social, and Governance (ESG) performance in the relationship between earnings management, tax management, and value relevance in publicly traded companies. The research seeks to understand how ESG performance influences the extent to which tax and earnings management practices impact the perceived value relevance.
Design/Methodology: The study employs a quantitative research design, utilizing a sample of publicly listed companies over a period of four years. Regression analysis is used to examine the relationships between tax management, earnings management, and value relevance, with ESG performance as a moderating variable. The data is sourced from financial statements, ESG reports, and market-based indicators.
Findings: The results indicate that ESG performance significantly moderates the impact of both tax management and earnings management on value relevance. Companies with higher ESG performance exhibit a weaker association between tax management and earnings management and their value relevance, suggesting that robust ESG practices may mitigate the potential negative effects of such management practices on value relevance.
Practical Implications: For practitioners, the findings underscore the importance of integrating ESG considerations into corporate strategies. Companies that prioritize ESG performance may not only enhance their social and environmental impact but also safeguard their market value from the adverse effects of tax management and earnings management.
Research Limitations: The study is limited by its focus on publicly traded companies, which may not fully represent private firms or those in different regulatory environments. Additionally, the four-year period analyzed may not capture long-term trends in ESG performance and its evolving impact on value relevance.

Keywords: ESG, Earnings Management, Tax Management, Relevance of Earning Quality, and Relevance of Tax Accounting

Topic: Sustainability accounting