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Does environmental, social, and governance performance mitigate earnings management practices? Evidence from US commercial banks

Environmental science and pollution research international, 2023-02, Vol.30 (8), p.20386-20401 [Peer Reviewed Journal]

The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2022. Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law. ;2022. The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature. ;The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2022, Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law. ;ISSN: 1614-7499 ;ISSN: 0944-1344 ;EISSN: 1614-7499 ;DOI: 10.1007/s11356-022-23616-2 ;PMID: 36255584

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  • Title:
    Does environmental, social, and governance performance mitigate earnings management practices? Evidence from US commercial banks
  • Author: Kolsi, Mohamed Chakib ; Al-Hiyari, Ahmad ; Hussainey, Khaled
  • Subjects: Aquatic Pollution ; Atmospheric Protection/Air Quality Control/Air Pollution ; Banking, Personal - legislation & jurisprudence ; Disclosure - legislation & jurisprudence ; Earth and Environmental Science ; Ecotoxicology ; Environment ; Environmental Chemistry ; Environmental Health ; Income ; Investments ; Policy ; Research Article ; Social Responsibility ; Waste Water Technology ; Water Management ; Water Pollution Control
  • Is Part Of: Environmental science and pollution research international, 2023-02, Vol.30 (8), p.20386-20401
  • Description: Environmental, social, and governance (ESG) performance has attracted debates of regulatory bodies and the academic community. Previous studies highlighted the relationship between corporate social responsibility (CSR) disclosure index and earnings management (EM) for non-financial firms. In this paper, we examine the relationship between the ESG performance and EM practices for a sample of US commercial banks over the period 2010–2019. We use two proxies for earnings management: abnormal loan loss provisions (ALLP) and EM to meet the threshold of reporting small positive profit or avoiding losses (SPOS). Consistent with the transparent financial reporting hypothesis, we find that banks reporting higher ESG performance are less likely engaged in income-increasing practice through ALLP. However, no evidence supports that ESG score mitigates EM through loss avoidance. Furthermore, we disaggregate the ESG score into its main three components: environmental, social, and governance. Our findings show that the governance pillar effectively mitigates EM practice under its two proxies. Specifically, the social pillar also seems to be an efficient constraint of banks’ EM through income-increasing abnormal loan loss provisions and loss avoidance activity. However, no supporting evidence of a mitigating role for the environmental pillar is provided. Taken together, our results show that, except the environmental pillar, ESG performance score acts as an efficient mitigating tool for EM practices for US banks. Our findings provide a better understanding of banks’ earnings management practices. Our findings are helpful for managers when undertaking long-term investment strategies in ESG reporting practices, regulators when issuing new standards, and banks’ stakeholders when assessing both the financial and non-financial performance of such entities.
  • Publisher: Berlin/Heidelberg: Springer Berlin Heidelberg
  • Language: English
  • Identifier: ISSN: 1614-7499
    ISSN: 0944-1344
    EISSN: 1614-7499
    DOI: 10.1007/s11356-022-23616-2
    PMID: 36255584
  • Source: AUTh Library subscriptions: ProQuest Central
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