Unveiling the relationship between corporate sustainability and earnings management: insights from India

Purpose Corporate sustainability is recognised as a moral imperative based on the notion that companies are obliged to meet social expectations and have ethical integrity. Further, the concept of corporate sustainability is perceived as the expression of ethical obligations upheld by managers that will be reflected in financial and non-financial reporting and responsible decisions. So, responsible companies are unlikely to be part of manipulation practices like earnings management. The present study aims to analyse how corporate sustainability practices influence the earnings management practices of non-financial Indian companies. Design/methodology/approach The sample comprises 113 companies included in Nifty 200 for a time span of 12 years. The study measured earnings management using the modified Jones model and corporate sustainability using the environmental, social and governance disclosure score provided by the Bloomberg database. The study employed panel data regression to examine the relationship. Findings The outcome indicates that the relationship between corporate sustainability and earnings management is not statistically significant. The insignificant relationship may be due to the underdevelopment of sustainability practices, as the majority of the companies are not prioritising sustainability but reporting to meet regulatory requirements. The findings suggest that Indian companies must seriously consider sustainability practices instead of doing the same for mandatory requirements to enjoy the benefits of sustainability. Originality/value To the best of the researcher’s knowledge, this is one of the initial studies that examined the link between corporate sustainability and earnings management in the Indian context.