The impact of earnings adjustments on environmental accounting disclosures

Corporate earnings adjustments affect the quality of accounting information. Although environmental accounting disclosures are non-financial indicators that are crucial for assessing the level of sustainability management, environmental costs can be a motivation for earnings adjustments because they impose additional costs on profits. In this study, we analyze the relationship between earnings adjustments and environmental accounting disclosures by selecting a sample of 1,550 Chinese chemical raw materials and chemical products manufacturing firms from 2008 to 2024 and examining their environmental accounting disclosures. The variables used in this analysis are profit adjustment and environmental accounting disclosure, which are proxies for corporate transparency selected based on a review of prior research. The results of the multivariate regression analysis show that profit adjustment has a significant positive effect on environmental accounting disclosure at the 5% level. This means that the more a firm adjusts its earnings, the more it discloses environmental accounting information, i.e., firms selectively disclose more positive environmental information using earnings adjustments to maintain a good image. This study is expected to contribute to a deeper understanding of the nature of environmental accounting information and to the supervision of firms' accounting information disclosure to provide more open and transparent accounting information to information users.