Do quality earnings management practices reduce corporate ESG performance? The moderating effect of corporate governance mechanisms: Empirical evidence from emerging economies

Responding to call in both the quality of earning management practices and corporate sustainability initiative literature to investigate the moderating effect of corporate governance mechanisms such as board gender diversity, board independence, audit committee independence and institutional or foreign ownership, this research filled corporate sustainability initiatives literature gaps by shedding the light on moderating effect of CG mechanisms on the quality of earning management practices and corporate ESG performance nexus. By utilizing a sample of 292 publicly listed companies in the context of emerging economies, countries such as Pakistan, Indonesia, and Malaysia are covered through their listed corporations for the period from 2016 to 2024 (2628 firm-year observations). By utilizing fixed-effects panel regression analysis with two-way clustered standard errors and country, year, industry, and firm fixed effects, the findings demonstrate that the quality of earnings management practices significantly reduces corporate ESG performance practices. All governance mechanisms, EM and ESG performance linkages, and the moderating effect of board gender diversity, board independence, and institutional ownership show a positive and significant moderating influence in Pakistan, Indonesia, and Malaysia, whereas AC independence shows no positive and significant moderating effect. Our study supported agency theory, resource dependence theory and stakeholders’ theory, which states that CG mechanisms lessen managerial exploitation of the resources which required for corporate sustainable investment and corporate sustainability initiative practices.