Dual-discipline or governance decoupling? How corporate governance and ESG disclosure shape the earnings management-financial performance nexus in an emerging market

Purpose This study examines the relationship between earnings management (EM) and financial performance (FP) in Vietnamese listed firms, while investigating the moderating roles of corporate governance (CG) and environmental, social and governance (ESG) disclosure within this nexus. Design/methodology/approach This study employs panel data from 303 non-financial listed firms over the period 2017–2024. A two-step System Generalized Method of Moments (GMM) estimator is applied to address endogeneity, simultaneity bias and dynamic persistence. Marginal effects are estimated to examine how EM affects FP across CG and ESG disclosure levels. Findings The findings show that the effect of EM on FP is contingent upon governance quality and ESG disclosure. When these mechanisms operate jointly, EM is more effectively constrained. Conversely, when ESG disclosure is high but governance quality is weak, the negative impact of EM becomes more pronounced, particularly for real EM. The findings are consistent with an expectation trap mechanism, whereby higher ESG disclosure may increase stakeholder expectations, while misalignment between disclosure and governance is associated with stronger negative market reactions. Overall, the evidence suggests that transparency alone is insufficient without credible internal governance. Originality/value This study contributes to the literature by developing a dual-discipline mechanism that captures the interaction between internal governance and external transparency. By separating CG from ESG disclosure, it avoids measurement overlap and clarifies their distinct roles. Moreover, a hand-collected Corporate Governance Index (CGI), based on the Organisation for Economic Co-operation and Development (OECD) Principles of Corporate Governance (2015, 2023), provides a context-sensitive measure of governance quality in an emerging market.