ESG performance and earnings management in publicly listed firms from G20 countries

This study explores the connection between Environmental, Social and Governance (ESG) performance and Earnings Management (EM), as well as the fact that firm age moderates the association. It is also concerned with whether ESG practices are actually good internal governance interventions or mere symbolic disclosures obscuring financial manipulation. This study uses dynamic panel data analysis on a sample of 4,884 publicly listed firms from G20 countries for the period 2013–2023 to generate 18,962 firm-year observations. EM is calculated using discretionary accruals from Jones (1991) model. ESG scores are computed from Bloomberg, and firm age is the duration since the firm’s incorporation. The findings indicate a generally negative association between ESG performance and earnings management, although the baseline effect is only marginally significant. Therefore, the evidence suggests a cautious disciplining role of ESG, which becomes clearer when firm age is considered a moderating condition. We contribute to the literature on this topic by integrating agency, stakeholder, legitimacy, and institutional theories to understand the link between ESG and EM. Firm age is presented as a new moderating variable, allowing an assessment of the heterogeneity of ESG’s impact on financial integrity over organizational life cycles. This study also presents credible evidence from accrual-based and modified models.