The Impact of ESG on Earnings Quality and Real Earnings Management: The Role of Firm Size
Abstract
1. Introduction
2. Literature Review
2.1. Theoretical Background
2.2. ESG
2.3. Earnings Quality
2.4. Real Earnings Management
3. Hypotheses Development
3.1. ESG and Earnings Quality
3.2. ESG and Real Earnings Management
3.3. The Role of Firm Size
4. Research Design
4.1. Data Collection and Sampling
4.2. Models and Variables Measurement
5. Results and Discussion
5.1. Descriptive and Univariate Analysis
5.2. Main Analysis
5.3. Additional Analysis
5.3.1. The Impact of ESG Dimensions on Both EQ and REM
5.3.2. Quantile Regression Analysis (QRA)
5.4. Robustness Checks
5.4.1. Alternative Measure of EQ
5.4.2. Alternative Sampling
5.4.3. Endogeneity Concerns
6. Conclusions
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Acknowledgments
Conflicts of Interest
References
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Panel A: Process of Sample Selection | |||
---|---|---|---|
70,311 | We focus on firms with data for ESG performance from Refinitiv Eikon (Initial sample) | ||
(20,974) | We exclude firm-year observations with missing values | ||
(17,287) | We exclude firm-year observations of regulated sectors (financial services and utilities) | ||
32,050 | Final sample [t = 2003, 2022] | ||
Panel B: Sample distribution by Industry (GICS Sector Name) | |||
Communication Services | 2341 | Industrials | 6777 |
Consumer Discretionary | 3629 | Information Technology | 3378 |
Consumer Staples | 2059 | Materials | 3876 |
Energy | 2604 | Real Estate | 3062 |
Health Care | 4324 | ||
Total | 32,050 |
Variables | Obs | Mean | Std. Dev | Min | Max |
---|---|---|---|---|---|
EQ | 32,050 | 52.440 | 27.155 | 3 | 99 |
REM | 32,050 | 0.018 | 0.107 | −0.407 | 0.280 |
ESG | 32,050 | 47.470 | 20.634 | 6.240 | 88.451 |
BG | 32,050 | 17.501 | 13.484 | 0 | 50 |
BS | 32,050 | 10.245 | 3.247 | 4 | 21 |
FS | 32,050 | 10.403 | 1.125 | 8.403 | 13.913 |
LEV | 32,050 | 18.585 | 16.377 | 0 | 68.985 |
ROA | 32,050 | 5.942 | 5.680 | 0.159 | 30.085 |
BIG4 | 32,050 | 0.520 | 0.500 | 0 | 1 |
CEOD | 32,050 | 0.400 | 0.490 | 0 | 1 |
LIQ | 32,050 | 15.013 | 50.43 | 0.005 | 396.287 |
AT | 32,050 | 8.897 | 7.009 | 1 | 27 |
INTINT | 32,050 | 0.037 | 0.083 | 1.06 × 10−5 | 0.557 |
ORIGIN | 32,050 | 0.497 | 0.500 | 0 | 1 |
DEVELOPED | 32,050 | 0.789 | 0.408 | 0 | 1 |
Panel A. EQ | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Variables | EQ | ESG | BG | BS | FS | LEV | ROA | BIG4 | CEOD | LIQ | AT | INTINT | ORIGIN | DEVELOPED |
EQ | 1.000 | |||||||||||||
ESG | 0.043 *** | 1.000 | ||||||||||||
BG | 0.039 *** | 0.305 *** | 1.000 | |||||||||||
BS | −0.044 *** | 0.223 *** | 0.079 *** | 1.000 | ||||||||||
FS | −0.122 *** | 0.239 *** | −0.221 *** | 0.205 *** | 1.000 | |||||||||
LEV | −0.134 *** | 0.097 *** | 0.109 *** | −0.023 *** | −0.118 *** | 1.000 | ||||||||
ROA | 0.383 *** | −0.047 *** | −0.014 ** | −0.178 *** | −0.189 *** | −0.106 *** | 1.000 | |||||||
BIG4 | 0.054 *** | −0.036 *** | −0.003 | 0.049 *** | −0.125 *** | 0.151 *** | 0.022 *** | 1.000 | ||||||
CEOD | 0.049 *** | −0.032 *** | 0.034 *** | 0.027 *** | −0.099 *** | 0.067 *** | 0.030 *** | 0.182 *** | 1.000 | |||||
LIQ | 0.004 | −0.148 *** | −0.027 *** | −0.115 *** | −0.112 *** | −0.126 *** | 0.114 *** | −0.110 *** | −0.060 *** | 1.000 | ||||
AT | 0.071 *** | 0.036 *** | 0.134 *** | 0.012 ** | −0.148 *** | 0.104 *** | 0.043 *** | 0.503 *** | 0.191 *** | −0.075 *** | 1.000 | |||
INTINT | 0.067 *** | −0.129 *** | 0.028 *** | −0.144 *** | −0.298 *** | −0.033 *** | 0.106 *** | 0.007 | 0.025 *** | 0.065 *** | 0.030 *** | 1.000 | ||
ORIGIN | 0.053 *** | −0.132 *** | 0.097 *** | −0.044 *** | −0.375 *** | 0.186 *** | 0.005 | 0.476 *** | 0.260 *** | −0.135 *** | 0.440 *** | 0.091 *** | 1.000 | |
DEVELOPED | 0.038 *** | 0.086 *** | 0.203 *** | 0.030 *** | −0.273 *** | 0.172 *** | −0.045 *** | 0.128 *** | 0.146 *** | −0.288 *** | 0.111 *** | 0.095 *** | 0.514 *** | 1.000 |
Panel B. REM | ||||||||||||||
Variables | REM | ESG | BG | BS | FS | LEV | ROA | BIG4 | CEOD | LIQ | AT | INTINT | ORIGIN | DEVELOPED |
REM | 1.000 | |||||||||||||
ESG | 0.057 *** | 1.000 | ||||||||||||
BG | −0.050 *** | 0.305 *** | 1.000 | |||||||||||
BS | 0.133 *** | 0.223 *** | 0.079 *** | 1.000 | ||||||||||
FS | 0.329 *** | 0.239 *** | −0.221 *** | 0.205 *** | 1.000 | |||||||||
LEV | 0.001 * | 0.097 *** | 0.109 *** | −0.023 *** | −0.118 *** | 1.000 | ||||||||
ROA | −0.460 *** | −0.047 *** | −0.014 ** | −0.178 *** | −0.189 *** | −0.106 *** | 1.000 | |||||||
BIG4 | −0.032 *** | −0.036 *** | −0.003 | 0.049 *** | −0.125 *** | 0.151 *** | 0.022 *** | 1.000 | ||||||
CEOD | −0.048 *** | −0.032 *** | 0.034 *** | 0.027 *** | −0.099 *** | 0.067 *** | 0.030 *** | 0.182 *** | 1.000 | |||||
LIQ | 0.017 ** | −0.148 *** | −0.027 *** | −0.115 *** | −0.112 *** | −0.126 *** | 0.114 *** | −0.110 *** | −0.060 *** | 1.000 | ||||
AT | −0.044 *** | 0.036 *** | 0.134 *** | 0.012 ** | −0.148 *** | 0.104 *** | 0.043 *** | 0.503 *** | 0.191 *** | −0.075 *** | 1.000 | |||
INTINT | −0.248 *** | −0.129 *** | 0.028 *** | −0.144 *** | −0.298 *** | −0.033 *** | 0.106 *** | 0.007 | 0.025 *** | 0.065 *** | 0.030 *** | 1.000 | ||
ORIGIN | −0.111 *** | −0.132 *** | 0.097 *** | −0.044 *** | −0.375 *** | 0.186 *** | 0.005 | 0.476 *** | 0.260 *** | −0.135 *** | 0.440 *** | 0.091 *** | 1.000 | |
DEVELOPED | −0.130 *** | 0.086 *** | 0.203 *** | 0.030 *** | −0.273 *** | 0.172 *** | −0.045 *** | 0.128 *** | 0.146 *** | −0.288 *** | 0.111 *** | 0.095 *** | 0.514 *** | 1.000 |
Variables | Model FE: EQ | Model FE: REM | Model FE: EQ Large Firms (Above the Mean) | Model FE: EQ Small Firms (Below the Mean) | Model FE: REM Large Firms (Above the Mean) | Model FE: REM Small Firms (Below the Mean) |
---|---|---|---|---|---|---|
ESG | 0.114 *** (0.012) | −1.24 × 10−4 ** (5.34 × 10−5) | 0.097 *** (0.017) | 0.138 *** (0.016) | −2.49 × 10−4 *** (6.37 × 10−5) | −1.359 × 10−4 * (7.570 × 10−5) |
BG | 0.030 * (0.018) | −2.81 × 10−5 (7.67 × 10−5) | −0.011 (0.027) | 0.061 ** (0.022) | −1.62 × 10−4 * (9.71 × 10−5) | −1.892 × 10−4 * (1.009 × 10−4) |
BS | 0.018 (0.072) | 6.20 × 10−4 ** (3.04 × 10−4) | −0.051 (0.098) | 0.261 ** (0.110) | −4.66 × 10−4 (3.30 × 10−4) | −1.342 × 10−3 ** (5.065 × 10−4) |
FS | −1.758 *** (0.243) | 0.020 *** (0.001) | −1.480 *** (0.424) | −2.436 *** (0.667) | 2.68 × 10−3 * (1.55 × 10−3) | 0.069 *** (0.004) |
LEV | −0.219 *** (0.015) | 1.87 × 10−5 (6.24 × 10−5) | −0.316 *** (0.028) | −0.186 *** (0.018) | −4.87 × 10−4 *** (9.25 × 10−5) | 5.660 × 10−5 (7.740 × 10−5) |
ROA | 1.743 *** (0.038) | −7.90 × 10−3 *** (2.31 × 10−4) | 2.088 *** (0.073) | 1.550 *** (0.043) | −8.11 × 10−3 *** (3.41 × 10−4) | −7.324 × 10−3 *** (2.531 × 10−4) |
BIG4 | 1.420 ** (0.511) | 0.004 * (0.002) | 1.904 ** (0.739) | 1.121 * (0.687) | −2.68 × 10−3 (2.48 × 10−3) | 0.010 ** (0.003) |
CEOD | 1.148 ** (0.443) | −5.37 × 10−4 (0.002) | 0.869 (0.672) | 1.440 ** (0.568) | −2.86 × 10−3 (2.43 × 10−3) | 2.950 × 10−6 (0.003) |
LIQ | −0.017 *** (0.005) | 1.65 × 10−4 *** (2.48 × 10−5) | −0.075 *** (0.020) | −8.48 × 10−3 ** (3.87 × 10−3) | 4.29 × 10−4 *** (7.19 × 10−5) | 8.170 × 10−5 *** (1.880 × 10−5) |
AT | 0.107 ** (0.037) | 1.12 × 10−4 (1.57 × 10−4) | 0.072 (0.057) | 0.123 ** (0.047) | −3.27 × 10−4 (2.05 × 10−4) | 1.764 × 10−4 (2.111 × 10−4) |
INTINT | 4.550 * (2.700) | −0.188 *** (0.017) | 0.181 (15.256) | 4.966 * (2.688) | −0.248 *** (0.053) | −0.117 *** (0.017) |
ORIGIN | 0.528 (0.667) | 0.003 (0.003) | 0.547 (1.091) | 1.140 (0.817) | 0.013 *** (0.004) | −0.011 ** (0.004) |
DEVELOPED | 1.048 (0.705) | −0.014 *** (0.003) | 1.248 (0.941) | −0.665 (1.157) | −0.010 ** (0.003) | 0.009 * (0.005) |
CONSTANT | 55.153 *** (2.788) | −0.135 *** (0.014) | 54.346 *** (5.411) | 59.373 *** (6.407) | 0.098 *** (0.019) | −0.609 *** (0.035) |
Adj R-squared | 0.178 | 0.317 | 0.186 | 0.165 | 0.295 | 0.319 |
Variables | Model FE: EQ (E) | Model FE: EQ (S) | Model FE: EQ (G) | Model FE: REM (E) | Model FE: REM (S) | Model FE: REM (G) |
---|---|---|---|---|---|---|
E | 0.047 *** (0.009) | 1.036 × 10−4 ** (3.870 × 10−5) | ||||
S | 0.085 *** (0.010) | −1.324 × 10−4 ** (4.320 × 10−5) | ||||
G | 0.062 *** (0.010) | −7.030 × 10−5 (4.410 × 10−5) | ||||
BG | 0.059 *** (0.017) | 0.043 ** (0.017) | 0.052 ** (0.018) | −1.295 × 10−4 * (7.520 × 10−5) | −2.530 × 10−5 (7.450 × 10−5) | −5.050 × 10−5 (7.730 × 10−5) |
BS | 0.054 (0.073) | 0.028 (0.073) | 0.131 * (0.071) | 3.320 × 10−4 (3.034 × 10−4) | 6.572 × 10−4 ** (3.050 × 10−4) | 4.980 × 10−4 * (2.992 × 10−4) |
FS | −1.524 *** (0.246) | −1.586 *** (0.240) | −1.431 *** (0.240) | 0.019 *** (0.001) | 0.020 *** (1.232 × 10−3) | 0.020 *** (0.001) |
LEV | −0.214 *** (0.015) | −0.219 *** (0.015) | −0.208 *** (0.015) | −1.540 × 10−5 (6.260 × 10−5) | 2.560 × 10−5 (6.240 × 10−5) | 7.130 × 10−6 (6.190 × 10−5) |
ROA | 1.753 *** (0.039) | 1.741 *** (0.038) | 1.766 *** (0.038) | −7.962 × 10−3 *** (2.331 × 10−4) | −7.887 × 10−3 *** (2.302 × 10−4 | −0.008 *** (0.000) |
BIG4 | 1.500 ** (0.515) | 1.507 ** (0.511) | 1.486 ** (0.511) | 0.003 (0.002) | 3.770 × 10−3 (2.302 × 10−3) | 0.004 (0.002) |
CEOD | 1.048 ** (0.445) | 0.943 ** (0.442) | 1.432 *** (0.450) | −6.481 × 10−4 (0.002) | −2.357 × 10−4 (1.943 × 10−3) | −8.622 × 10−4 (0.002) |
LIQ | −0.019 *** (0.005) | −0.016 *** (0.005) | −0.020 *** (0.005) | 1.715 × 10−4 *** (2.480 × 10−5) | 1.626 × 10−4 *** (2.480 × 10−5) | 1.683 × 10−4 *** (2.470 × 10−5) |
AT | 0.112 ** (0.038) | 0.102 ** (0.037) | 0.133 *** (0.037) | 5.960 × 10−5 (1.567 × 10−4) | 1.288 × 10−4 (1.577 × 10−4) | 8.430 × 10−5 (1.574 × 10−4) |
INTINT | 4.249 (2.705) | 4.081 (2.696) | 3.756 (2.705) | −0.184 *** (0.017) | −0.188 *** (0.017) | −0.187 *** (0.017) |
ORIGIN | 0.431 (0.693) | 0.593 (0.669) | −0.646 (0.665) | 0.006 * (0.003) | 2.671 × 10−3 (3.240 × 10−3) | 0.004 (0.003) |
DEVELOPED | 1.510 ** (0.713) | 0.991 (0.710) | 2.006 ** (0.702) | −0.016 *** (0.003) | −0.013 *** (3.190 × 10−3) | −0.015 *** (0.003) |
CONSTANT | 54.878 *** (2.852) | 54.484 *** (2.790) | 51.582 *** (2.792) | −0.124 *** (0.014) | −0.136 *** (0.014) | −0.131 *** (0.014) |
Adj R-squared | 0.174 | 0.177 | 0.174 | 0.317 | 0.317 | 0.317 |
Panel A. EQ and ESG | |||||||||
---|---|---|---|---|---|---|---|---|---|
EQ | |||||||||
q10 | q20 | q30 | q40 | q50 | q60 | q70 | q80 | q90 | |
ESG | 0.079 *** (0.012) | 0.112 *** (0.011) | 0.136 *** (0.012) | 0.145 *** (0.011) | 0.142 *** (0.012) | 0.133 *** (0.012) | 0.120 *** (0.012) | 0.103 *** (0.011) | 0.063 *** (0.010) |
Constant | −1.208 (2.672) | 13.935 *** (2.477) | 32.414 *** (2.743) | 45.949 *** (2.644) | 58.469 *** (2.697) | 70.484 *** (2.727) | 84.167 *** (2.754) | 95.209 *** (2.562) | 104.157 *** (2.266) |
Controls | Included | Included | Included | Included | Included | Included | Included | Included | Included |
Pseudo R2 | 0.065 | 0.095 | 0.109 | 0.115 | 0.116 | 0.113 | 0.106 | 0.094 | 0.072 |
Panel B. REM and ESG | |||||||||
REM | |||||||||
q10 | q20 | q30 | q40 | q50 | q60 | q70 | q80 | q90 | |
ESG | 2.687 × 10−4 *** (5.89 × 10−5) | 1.227 × 10−4 ** (3.75 × 10−5) | 3.16 × 10−5 (3.03 × 10−5) | −3.23 × 10−5 (2.67 × 10−5) | −1.03 × 10−4 *** (2.59 × 10−5) | −1.61 × 10−4 *** (2.72 × 10−5) | −2.09 × 10−4 *** (2.79 × 10−5) | −2.92 × 10−4 *** (2.94 × 10−5) | −4.45 × 10−4 *** (4.11 × 10−5) |
Constant | −0.281 *** (0.014) | −0.166 *** (0.009) | −0.119 *** (0.007) | −0.089 *** (0.006) | −0.068 *** (0.006) | −0.050 *** (0.006) | −0.033 *** (0.006) | −0.009 (0.007) | 0.032 ** (0.009) |
Controls | Included | Included | Included | Included | Included | Included | Included | Included | Included |
Pseudo R2 | 0.323 | 0.278 | 0.232 | 0.184 | 0.143 | 0.124 | 0.117 | 0.104 | 0.085 |
Variables | LNEQ | EQ: Excluding United States, China, and Hong Kong | REM: Excluding United States, China, and Hong Kong | 2SLS EQ | 2SLS REM |
---|---|---|---|---|---|
ESG | 0.003 *** (3.29 × 10−4) | 0.109 *** (0.016) | −2.254 × 10−4 ** (7.150 × 10−5) | 0.093 *** (0.012) | −1.376 × 10−4 ** (4.110 × 10−5) |
BG | 0.001 ** (5.06 × 10−4) | 0.016 (0.022) | 7.250 × 10−7 (9.920 × 10−5) | 0.021 * (0.013) | 1.151 × 10−4 ** (4.510 × 10−5) |
BS | 0.003 (0.002) | −0.077 (0.092) | 8.170 × 10−4 ** (3.811 × 10−4) | 0.084 * (0.045) | 3.502 × 10−4 ** (1.563 × 10−4) |
FS | −0.039 *** (0.007) | −1.936 *** (0.268) | 0.015 *** (0.001) | −1.593 *** (0.159) | 0.020 *** (0.001) |
LEV | −0.006 *** (4.27 × 10−4) | −0.248 *** (0.024) | −2.696 × 10−4 ** (9.870 × 10−5) | −0.214 *** (0.009) | 2.280 × 10−5 (3.360 × 10−5) |
ROA | 0.040 *** (0.001) | 1.678 *** (0.055) | −0.008 *** (3.460 × 10−4) | 1.738 *** (0.027) | −0.008 *** (1.398 × 10−4) |
BIG4 | 0.035 ** (0.015) | −0.494 (0.719) | 0.006 ** (0.003) | 1.721 *** (0.348) | 0.001 (0.001) |
CEOD | 0.032 ** (0.012) | 1.272 ** (0.633) | 0.003 (0.003) | 1.294 *** (0.292) | −0.001 (0.001) |
LIQ | −6.40 × 10−4 *** (1.45 × 10−4) | −0.006 (0.027) | 6.904 × 10−4 *** (1.543 × 10−4) | −0.019 *** (0.003) | 1.715 × 10−4 *** (1.430 × 10−5) |
AT | 0.004 *** (0.001) | −0.023 (0.061) | 5.768 × 10−4 ** (2.551 × 10−4) | 0.094 *** (0.024) | 1.899 × 10−4 ** (8.830 × 10−5) |
INTINT | 0.013 (0.079) | −4.062 (4.525) | −0.188 *** (0.025) | 4.026 ** (1.898) | −0.185 *** (0.010) |
ORIGIN | 0.033 * (0.019) | −1.934 * (1.079) | −0.007 (0.005) | 0.543 (0.416) | 0.004 ** (0.002) |
DEVELOPED | 0.031 (0.020) | −2.016 ** (0.842) | −0.015 *** (0.004) | 1.547 *** (0.444) | −0.017 *** (0.002) |
CONSTANT | 3.727 *** (0.080) | 63.670 *** (3.362) | −0.074 *** (0.017) | 53.425 *** (1.800) | −0.134 *** (0.007) |
Adj R-squared | 0.128 | 0.169 | 0.314 | 0.175 | 0.304 |
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Vatis, S.E.; Drogalas, G.; Persakis, A.; Chytis, E. The Impact of ESG on Earnings Quality and Real Earnings Management: The Role of Firm Size. Sustainability 2025, 17, 5027. https://doi.org/10.3390/su17115027
Vatis SE, Drogalas G, Persakis A, Chytis E. The Impact of ESG on Earnings Quality and Real Earnings Management: The Role of Firm Size. Sustainability. 2025; 17(11):5027. https://doi.org/10.3390/su17115027
Chicago/Turabian StyleVatis, Stylianos Efstratios, George Drogalas, Antonios Persakis, and Evangelos Chytis. 2025. "The Impact of ESG on Earnings Quality and Real Earnings Management: The Role of Firm Size" Sustainability 17, no. 11: 5027. https://doi.org/10.3390/su17115027
APA StyleVatis, S. E., Drogalas, G., Persakis, A., & Chytis, E. (2025). The Impact of ESG on Earnings Quality and Real Earnings Management: The Role of Firm Size. Sustainability, 17(11), 5027. https://doi.org/10.3390/su17115027