Does Supporting SDG 16 Influence Firms' Exposure to Bribery, Corruption, and Fraud Controversies? The Role of Financial Reporting Quality

ABSTRACT Sustainable development has become a central focus in corporate governance, particularly in relation to the impact of anti‐corruption practices. Research on SDG 16 has largely focused on broad governance outcomes, paying little attention to its impact on misconduct and anti‐corruption practices at a firm level. Furthermore, there is limited research on whether improving the quality of financial reporting enhances the effectiveness of SDG 16 initiatives, particularly in the UK. This study examines the moderating effect of financial reporting quality, proxied by lower earnings management, on the relationship between Sustainable Development Goal 16 and corporate governance outcomes, specifically in the context of bribery, corruption, and fraud controversies score and policy bribery and corruption score. In addition, the study examines the moderating role of earnings management, as measured by the Modified Jones Model Discretionary Accruals, in the relationship between Sustainable Development Goal 16 and corporate governance outcomes, specifically in the context of the bribery, corruption, and fraud controversies score and the policy bribery and corruption score. Using a dataset of 3260 firm‐year observations from 326 companies in the industrial, energy, and basic materials sectors in the United Kingdom from 2014 to 2023, the study employs the generalized least squares random effect estimation technique to test the hypotheses and the two‐step Generalized Method of Moments for robustness of the results. The results indicate that firms aligning themselves with SDG 16 experience a negative correlation with bribery and corruption issues. Another important finding is that financial reporting quality, proxied by earnings management, strengthens the impact of anti‐corruption policies, promoting greater transparency, accountability, and alignment with SDG 16 objectives. The study emphasizes that the characteristics of organizations significantly influence the implementation of SDG16, which, in turn, impacts the practices related to bribery, corruption, and fraud controversies.