The Effect of Earnings Management on Environmental, Social, and Governance ( ESG ) Performance in the MENAT Region: The Moderating Role of Corporate Governance

ABSTRACT This study investigates how earnings management (EM) influences ESG performance and whether corporate governance mechanisms shape this relationship. Drawing on agency and stakeholder perspectives, the study examines how managerial incentives and governance effectiveness jointly shape the relationship between EM and ESG performance. Using 13,181 firm‐year observations from publicly listed firms across 15 MENAT countries over 2017–2024 and applying a dynamic System GMM approach, the findings reveal a significant negative association between EM and the Refinitiv ESG scores used as proxies for ESG performance. The analysis further demonstrates that the EM–ESG relationship is conditional on board characteristics. To reduce potential measurement overlap between board‐level moderators and governance‐related inputs embedded in the Refinitiv governance pillar, primary moderation inference is drawn from the environmental and social dimensions. The results reveal heterogeneous governance effects across EM measures and sustainability dimensions. Board expertise is consistently associated with a weaker negative relationship between real earnings management and the Refinitiv environmental and social scores, whereas gender diversity, board tenure, and CEO duality exhibit pillar‐ and EM‐specific moderating effects. These findings indicate that governance effectiveness depends on both the form of managerial opportunism and the sustainability outcome considered. Robustness analyses using alternative estimators and sample specifications provide further support for the principal empirical relationships. By integrating EM, ESG performance, and corporate governance within a unified framework, this study contributes to resolving inconsistencies in prior literature and provides novel evidence from the MENAT region. The findings highlight the relevance of governance mechanisms in shaping the association between earnings management and the Refinitiv ESG scores used as proxies for ESG performance.