Carbon-Based Environmental Performance and Earnings Management in South African Carbon Emitting Companies
Keywords:
Earnings management; Ethical financial reporting; Financial reporting quality; Environmental performance; JSE carbon-intensive firmsAbstract
Objectives: This study investigates the association between carbon-related environmental performance and earnings management among firms listed on the Johannesburg Stock Exchange, addressing the growing need to understand whether environmental responsibility improves financial reporting quality or encourages opportunistic behavior. Prior Work: Prior research has predominantly focused on composite environmental, social and governance performance, with limited attention to carbon-related environmental performance, especially in developing countries and carbon-intensive firms where evidence remains inconclusive. Approach: The study adopts a quantitative panel data approach, analyzing 53 carbon-intensive companies over the period 2015-2024. Fixed effects and system generalized method of moments estimators were employed to address unobserved heterogeneity and potential endogeneity. Results: The results report a statistically significant negative relationship between carbon-related environmental performance and earnings management. The findings offer useful insights for investors, regulators and firm managers by demonstrating the role of environmentally responsible practices in strengthening transparent financial reporting and Value: This study advances existing literature by isolating carbon-related environmental performance from broader sustainability measures and provide context-specific evidence from a developing country, thereby providing more precise insights into the environmental performance-earnings management relationship.
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