Environmental, social and governance (ESG) performance and earnings management: the role of gender diversity

Purpose This study investigates the impact of ESG performance on earnings management practices in Indonesia and also examines whether gender diversity on the board of commissioners moderates this relationship. Design/methodology/approach The sample of this study consisted of nonfinancial companies listed on the Indonesia Stock Exchange from 2014 to 2022. ESG performance is proxied by the ESG score; earnings management is calculated by the Jones modified model. Gender diversity is represented by the proportion of female board commissioners. This research employs a balanced panel; after conducting model tests, the common effect model is used to test the first hypothesis, and the fixed effect model is applied to test the second hypothesis. Findings This study provides empirical evidence that higher ESG performance in a company is associated with lower earnings management. Companies with a diverse gender composition on their board of commissioners demonstrate a stronger negative relationship between ESG performance and earnings management. Research limitations/implications Empirical evidence on company ESG performance is important because Indonesia, as a G20 member, is striving to maximize the implementation of the SDGs. This study provides empirical evidence on the significance of Goal 5 of the SDGs, which pertains to gender equality in Indonesia. Originality/value This study complements previous research on ESG in Indonesia by providing empirical evidence on the impact of strong ESG performance among companies. Referring to Indonesia’s two-tier board system and Goal 5 of the SDGs, which focuses on gender equality, this study examines the value of gender diversity on the board of commissioners.