ESG PILLARS AND EARNINGS MANAGEMENT
A SYSTEMATIC LITERATURE REVIEW
DOI:
https://doi.org/10.51903/eqgrd928Keywords:
ESG Pillar, Earnings Management, environmental, social, governanceAbstract
Research on the relationship between ESG and earnings management has grown substantially within the academic community. This trend raises questions about how each ESG pillar (environmental, social, and governance) influences earnings management differently. This systematic literature review aims to analyze the influence of ESG pillars on earnings management. Employing the PRISMA methodology, we identified quantitative research articles published in English and Indonesian between 2018 and 2025. We excluded studies that were not indexed in major databases or did not directly address ESG metrics. Six studies include the ESG pillars as independent variables and earnings management as the dependent variable. This SLR presents how these six studies define ESG pillars and earnings management, specifying the measures and proxies used. Our review reveals that the environmental pillar is positively associated with earnings management, predominantly accrual-based earnings management. In contrast, the governance pillar exhibits a significant negative association, indicating that stronger governance mechanisms restrain opportunistic financial reporting. The social pillar yields mixed results: some studies report a negative relationship, while others report a positive relationship, suggesting further investigation. The review also recommends future research to detail pillar scores and explore ESG sub-pillars. In summary, these findings underscore the contrasting roles that environmental and governance factors play in shaping earnings management decisions by corporate managers.
References
Acar, G., & Coskun, A. (2023). Environmental, social, and governance scores and earnings management in telecommunication companies: An international perspective. Financial Internet Quarterly, 19(2), 26–35. https://doi.org/10.2478/fiqf-2023-0010
Adeneye, Y. B., Fasihi, S., Kammoun, I., & Albitar, K. (2023). Does earnings management constrain ESG performance? The role of corporate governance. International Journal of Disclosure and Governance 2023 21:1, 21(1), 69–92. https://doi.org/10.1057/S41310-023-00181-9
Adeneye, Y., & Kammoun, I. (2022). Real earnings management and capital structure: Does environmental, social and governance (ESG) performance matter? Cogent Business and Management, 9(1). https://doi.org/10.1080/23311975.2022.2130134
Akbar, A., Putri, S., & Ananta, Y. A. (2024a). The Relationship between Sustainability Performance and Earnings Management: A Comprehensive Analysis Through a Systematic Review of Literature. Bridging Management Control Systems and Sustainability: Systematic Reviews on Business Performance and Risk.
Akbar, A., Putri, S., & Ananta, Y. A. (2024b). The Relationship between Sustainability Performance and Earnings Management: A Comprehensive Analysis Through a Systematic Review of Literature.
Almubarak, W. I., Chebbi, K., & Ammer, M. A. (2023). Unveiling the Connection among ESG, Earnings Management, and Financial Distress: Insights from an Emerging Market. Sustainability (Switzerland), 15(16). https://doi.org/10.3390/su151612348
Barth, M. E., Elliott, J. A., & Finn, M. W. (1999). Market Rewards Associated with Patterns of Increasing Earnings. Journal of Accounting Research, 37(2), 387. https://doi.org/10.2307/2491414
Berg, F., Kö Lbel, J. F., Rigobon, R., King, A., Orts, E., Jay, J., Kaminski, K., Goldberg, L., Bohnsack, R. E., Eccles, R., Ramelli, S., Lyon, T., Busch, T., Le, Y., Hsieh, J., Gori, A., Lu, A., Duddy, E., Rajaram, S., & Dettwiler, N. (2022). Aggregate Confusion: The Divergence of ESG Ratings. Review of Finance, 2022, 1315–1344. https://doi.org/10.1093/rof/rfac033
Billio, M., Costola, M., Hristova, I., Latino, C., & Pelizzon, L. (2021). Inside the ESG ratings: (Dis)agreement and performance. Corporate Social Responsibility and Environmental Management, 28(5), 1426–1445. https://doi.org/10.1002/CSR.2177;CSUBTYPE:STRING:SPECIAL;PAGE:STRING:ARTICLE/CHAPTER
Chytis, E., Eriotis, N., & Mitroulia, M. (2024). ESG in Business Research: A Bibliometric Analysis. Journal of Risk and Financial Management 2024, Vol. 17, Page 460, 17(10), 460. https://doi.org/10.3390/JRFM17100460
Cohen, D. A., & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity offerings. Journal of Accounting and Economics, 50(1), 2–19. https://doi.org/10.1016/J.JACCECO.2010.01.002
Dawkins, C. E., & Fraas, J. W. (2011). Erratum to: Beyond Acclamations and Excuses: Environmental Performance, Voluntary Environmental Disclosure and the Role of Visibility. Journal of Business Ethics, 99(3), 383–397. https://doi.org/10.1007/S10551-010-0659-Y/METRICS
Dechow, P., Sloan, R., & Sweeney, A. (1995). Detecting Earnings Management on JSTOR. The Accounting Review, 70(2), 193–195. https://www.jstor.org/stable/248303
Dimitrantzou, C., Psomas, E., & Vouzas, F. (2020). Future research avenues of cost of quality: a systematic literature review. TQM Journal, 32(6), 1599–1622. https://doi.org/10.1108/TQM-09-2019-0224/FULL/XML
Dinata, I. P. H. B., & Asqolani, A. (2024). The Effect of Tax Avoidance, Tax Rate Change, and Sustainability Disclosure on Earnings Management. Economics and Finance in Indonesia, 70(1), 34–48. https://doi.org/10.47291/efi.2024.03
Jain, K., & Tripathi, P. S. (2023). Mapping the environmental, social and governance literature: a bibliometric and content analysis. Journal of Strategy and Management, 16(3), 397–428. https://doi.org/10.1108/JSMA-05-2022-0092/FULL/PDF
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Kolsi, M. C., Al-Hiyari, A., & Hussainey, K. (2023). Does environmental, social, and governance performance mitigate earnings management practices? Evidence from US commercial banks. Environmental Science and Pollution Research, 30(8), 20386–20401. https://doi.org/10.1007/s11356-022-23616-2
Li, Y., Gong, M., Zhang, X. Y., & Koh, L. (2018). The impact of environmental, social, and governance disclosure on firm value: The role of CEO power. The British Accounting Review, 50(1), 60–75. https://doi.org/10.1016/J.BAR.2017.09.007
Linh, N. T. (2024). Agency Theory in Management Accounting: A Systematic Literature Review. International Journal of Advanced Multidisciplinary Research and Studies, 4(1), 1124–1127. www.multiresearchjournal.com
Martiny, A., Taglialatela, J., Testa, F., & Iraldo, F. (2024). Determinants of environmental social and governance (ESG) performance: A systematic literature review. In Journal of Cleaner Production (Vol. 456). Elsevier Ltd. https://doi.org/10.1016/j.jclepro.2024.142213
Palacios-Manzano, M., Gras-Gil, E., & Santos-Jaen, J. M. (2021). Corporate social responsibility and its effect on earnings management: an empirical research on Spanish firms. Total Quality Management & Business Excellence, 32(7–8), 921–937. https://doi.org/10.1080/14783363.2019.1652586
Parvin, R., Sohel, M., Assistant, R., & Shams, S. (2020). Literature Review on the Association between Earnings Management and Corporate Social Responsibility. CRIBFB |IJAFR International Journal of Accounting & Finance Review, 5(1). www.cribfb.com/journal/index.php/ijafr
Passas, I. (2024). The Evolution of ESG: From CSR to ESG 2.0. Encyclopedia 2024, Vol. 4, Pages 1711-1720, 4(4), 1711–1720. https://doi.org/10.3390/ENCYCLOPEDIA4040112
Primacintya, V. A., & Kusuma, I. W. (2025). Environmental, social and governance (ESG) performance and earnings management: the role of gender diversity. Asian Journal of Accounting Research. https://doi.org/10.1108/AJAR-12-2023-0414
Rahmaniati, N. P. G., & Ekawati, E. (2024). The role of Indonesian regulators on the effectiveness of ESG implementation in improving firms’ non-financial performance. Cogent Business and Management, 11(1), 2293302. https://doi.org/10.1080/23311975.2023.2293302/ASSET/54ED0255-2062-4873-A70C-5A20EEF288B3/ASSETS/GRAPHIC/OABM_A_2293302_F0001_C.JPG
Rau, P. R., & Yu, T. (2024). A survey on ESG: investors, institutions and firms. In China Finance Review International (Vol. 14, Issue 1, pp. 3–33). Emerald Publishing. https://doi.org/10.1108/CFRI-12-2022-0260
Ribando, J. M., & Bonne, G. (2010). A NEW QUALITY FACTOR: FINDING ALPHA WITH ASSET4 ESG DATA STARMINE RESEARCH NOTE EXECUTIVE SUMMARY.
Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42(3), 335–370. https://doi.org/10.1016/J.JACCECO.2006.01.002
Sagita, D. (2025). Sustainability Reporting and Earnings Management: Systematic Literature Review. Owner, 9(2). https://doi.org/10.33395/owner.v9i2.2615
Sauer, P. C., & Seuring, S. (2023). How to conduct systematic literature reviews in management research: a guide in 6 steps and 14 decisions. Review of Managerial Science, 17(5), 1899–1933. https://doi.org/10.1007/S11846-023-00668-3/FIGURES/1
Shan, M., & Zhu, J. (2024). Do ESG ratings inhibit corporate leverage manipulation? The moderating effects of internal and external supervision. Sustainability Accounting, Management and Policy Journal, ahead-of-print(ahead-of-print). https://doi.org/10.1108/SAMPJ-08-2023-0542/FULL/XML
Terzani, S., & Turzo, T. (2021). Religious social norms and corporate sustainability: The effect of religiosity on environmental, social, and governance disclosure. Corporate Social Responsibility and Environmental Management, 28(1), 485–496. https://doi.org/10.1002/CSR.2063;WGROUP:STRING:PUBLICATION
Velayutham, E. (2018). Sustainability disclosure and earnings management. Research Handbook of Finance and Sustainability, 532–549. https://doi.org/10.4337/9781786432636.00037
Velte, P. (2019). The bidirectional relationship between ESG performance and earnings management – empirical evidence from Germany. Journal of Global Responsibility, 10(4), 322–338. https://doi.org/10.1108/JGR-01-2019-0001
Velte, P. (2021). Environmental performance, carbon performance and earnings management: Empirical evidence for the European capital market. Corporate Social Responsibility and Environmental Management, 28(1), 42–53. https://doi.org/10.1002/CSR.2030
Velte, P. (2024). Corporate social responsibility (CSR) and earnings management: A structured literature review with a focus on contextual factors. In Corporate Social Responsibility and Environmental Management. John Wiley and Sons Ltd. https://doi.org/10.1002/csr.2903
Willyam Panjaitan, D., & Suranta, E. (2024). Environmental, social and governance, and earnings management-David willyam Panjaitan et.al Environmental, social and governance, and earnings management. Jurnal Ekonomi, 13. https://doi.org/10.54209/ekonomi.v13i01
Zang, A. Y. (2012). Evidence on the trade-off between real activities manipulation and accrual-based earnings management. Accounting Review, 87(2), 675–703. https://doi.org/10.2308/ACCR-10196
