Earnings Management and IFRS Adoption Influence on Corporate Sustainability Performance: The Moderating Roles of Institutional Ownership and Board Independence

Many companies engage in earnings manipulation that obscures their actual financial condition and sustainability efforts, undermining the credibility of financial reports and eroding stakeholder trust. To address these concerns, the United Kingdom has strictly adhered to International Financial Reporting Standards (IFRS), enhancing financial transparency and reducing the risk of manipulation. This study applies agency theory to examine the effects of earnings management and IFRS adoption on corporate sustainability performance, while also assessing the moderating roles of institutional ownership and board independence. Data were drawn from 248 companies listed on the London Stock Exchange between 2002 and 2024, using purposive sampling and sourced from Thomson Reuters Eikon DataStream. Advanced estimation techniques, specifically the Augmented Mean Group (AMG) and fixed effects models with Driscoll-Kraay standard errors, were employed to address cross-sectional dependence and slope heterogeneity. The results indicate that earnings management, as measured by discretionary accruals, has a significant negative impact on sustainability performance. In contrast, the adoption of IFRS has a positive and significant influence on sustainability outcomes. Additionally, institutional ownership and board independence significantly moderate the adverse effects of earnings management, leading to improved sustainability performance. The findings suggest that managers should enhance the clarity and accountability of financial reporting by implementing robust internal systems aligned with IFRS, conducting regular compliance audits, and training finance staff on current disclosure standards.