Enterprise Risk Management and Earnings Management: Accrual-Based and Real Activities Evidence from Chinese Listed Firms

Earnings management undermines financial transparency and threatens long-term corporate sustainability, particularly in emerging markets where principal–agent conflicts remain pronounced. In China’s capital market, performance-based incentives may motivate managers to manipulate reported earnings, thereby impairing investor protection and governance quality. Despite growing interest in enterprise risk management (ERM) as a holistic governance mechanism, empirical evidence on its effectiveness in constraining earnings manipulation remains limited. This paper investigates the governance role of ERM in mitigating both accrual-based earnings management (AEM) and real earnings management (REM) among Chinese listed firms over the period 2019–2024. Using panel regression models, this study examines whether higher ERM engagement is associated with lower levels of earnings manipulation. The results indicate that ERM is significantly and negatively related to both AEM and REM. These findings remain robust to alternative variable definitions, different sample period specifications, interaction analyses between accrual-based and real earnings management, alternative constructions of ERM (including PCA-based measures and exclusion of reporting-related components), and endogeneity tests using industry–year average ERM as a proxy. Further heterogeneity analyses reveal that the constraining effect of ERM on REM is more pronounced in firms audited by non-Big Four auditors, while the effect is weaker in Big Four audited firms. Overall, the evidence suggests that ERM functions as an effective internal governance mechanism that enhances financial reporting quality and supports sustainable corporate performance. This paper contributes to the sustainability and corporate governance literature by providing empirical evidence from an emerging market context and offers practical implications for regulators and corporate decision-makers seeking to strengthen risk governance frameworks.