The Impact Of Environmental, Social and Governance on Corporate Value: The Role Of Real Earning Management As Moderating Variable
Abstract
The purpose of this study is to provide empirical evidence on the influence of Environmental, Social, and Governance (ESG) on corporate value. The study also examined the role of real earnings management (REM) as a moderation variable in the relationship. Our sample is non-financial companies listed on the Indonesia Stock Exchange for the period 2012-2020. Tobin’s Q is used to measure the value of a company. ESG is measured using ESG scores issued by Thomson Reuters. REM is calculated by combining abnormal cash flow calculations, abnormal manufacturing costs, and abnormal discretionary costs. The results of statistical testing show that ESG affects the value of the company. The results of this study support the findings of previous literature, which empirically found that ESG practices can increase company value because investors have assumed that ESG is a relevant value in decision-making. In addition, statistical results also show that REM is not proven to have a moderating effect on the effect of ESG on company value, but REM has an influence on company value. The results of this study support the findings of previous literature, which empirically found that REM practices carried out by companies will reduce company value if detected by investors. The study had some limitations. First, this study only uses ESG data provided by Thomson Reuters with minimal data completeness, so it does not adequately cover the data needed. Second, the study only focused on the non-financial sector.
References
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Solimun. (2011). Analisis Variabel moderasi dan Mediasi. In Program Suti Statistika FMIPA Universitas Brawijaya. Malang.
Srivastava, A. (2019). Improving the Measures of Real Earnings Management. SSRN Electronic Journal. https://doi.org/10.2139/SSRN.2848167
Sulistyanto, S. (2008). Manajemen Laba: Teori dan Model Empiris. PT. Gramedia Widiasarana Indonesia.
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Velayutham, E. (2018). Sustainability disclosure and earnings management. Research Handbook of Finance and Sustainability, 532–549. https://doi.org/10.4337/9781786432636.00037
Velte, P. (2020). Corporate Social Responsibility (CSR) and Earnings Management: A Literature Review. https://papers.ssrn.com/abstract=3755451
Whelan, C., & McNamara, R. (2004). The Impact of Earnings Management on the Value-relevance of Financial Statement Information. SSRN Electronic Journal. https://doi.org/10.2139/SSRN.585704
Widiastuty, E., & Soewarno, N. (2019). Csr expenditure and company performance: Charity or signal? Evidence from Indonesia. Quality Innovation Prosperity, 23(3), 22–37. https://doi.org/10.12776/QIP.V23I3.1273
Yoon, B., Lee, J. H., & Byun, R. (2018). Does ESG performance enhance firm value? Evidence from Korea. Sustainability (Switzerland), 10(10). https://doi.org/10.3390/SU10103635
Yu, E. P. yi, Guo, C. Q., & Luu, B. Van. (2018). Environmental, social and governance transparency and firm value. Business Strategy and the Environment, 27(7), 987–1004. https://doi.org/10.1002/BSE.2047
Bartov, E., & Mohanram, P. (2004). Private Information, Earnings Manipulations, and Executive Stock-Option Exercises on JSTOR. The Accounting Review, 79(4). https://www.jstor.org/stable/4093080
Behl, A., Kumari, P. S. R., Makhija, H., & Sharma, D. (2022). Exploring the relationship of ESG score and firm value using cross-lagged panel analyses: case of the Indian energy sector. Annals of Operations Research, 313(1), 231–256. https://doi.org/10.1007/S10479-021-04189-8/TABLES/7
Boffo, R., C. Marshall, & R. Patalano. (2020). ESG Investing: Environmental Pillar Scoring and Reporting. OECD. https://www.oecd.org/finance/esg-investing-environmental-pillar-scoring-and-reporting.pdf
Brigham, E. F., & J.F. Houston. (2010). Dasar-dasar Manajemen Keuangan Buku 1 (edisi II). Salemba Empat.
Chouaibi, Y., & Zouari, G. (2022). The effect of corporate social responsibility practices on real earnings management: evidence from a European ESG data. International Journal of Disclosure and Governance, 19(1), 11–30. https://doi.org/10.1057/S41310-021-00125-1
Constantinescu, D., Caraiani, C., Lungu, C. I., & Mititean, P. (2021). Environmental, social and governance disclosure associated with the firm value. Evidence from energy industry. Journal of Accounting and Management Information Systems, 20(1), 56–75. https://www.ceeol.com/search/article-detail?id=940641
Cupertino, C. M., Martinez, A. L., & Da Costa, N. C. A. (2016). Consequences for future return with earnings management through real operating activities. Revista Contabilidade e Financas, 27(71), 232–242. https://doi.org/10.1590/1808-057x201602520
Darmawan, I. P. E., Sutrisno, & Mardiati, E. (2019). Accrual Earnings Management and Real Earnings Management: Increase or Destroy Firm Value? International Journal of Multicultural and Multireligious Understanding (IJMMU), 6(2). https://doi.org/10.18415/ijmmu.v6i2.551666
Farooqi, J., Harris, O., & Ngo, T. (2014). Corporate diversification, real activities manipulation, and firm value. Journal of Multinational Financial Management, 27, 130–151. https://doi.org/10.1016/j.mulfin.2014.06.010
Fatemi, A., Glaum, M., & Kaiser, S. (2018). ESG performance and firm value: The moderating role of disclosure. Global Finance Journal, 38, 45–64. https://doi.org/10.1016/j.gfj.2017.03.001
Folger-Laronde, Z., Pashang, S., Feor, L., & ElAlfy, A. (2020). ESG ratings and financial performance of exchange-traded funds during the COVID-19 pandemic. Https://Doi.Org/10.1080/20430795.2020.1782814, 12(2), 490–496. https://doi.org/10.1080/20430795.2020.1782814
Graham, J. R., Harvey, C. R., & Rajgopal, S. (2005). The Economic Implications of Corporate Financial Reporting. SSRN Electronic Journal. https://doi.org/10.2139/SSRN.491627
Holder-Webb, L., Cohen, J. R., Nath, L., & Wood, D. (2011). The Supply of Corporate Social Responsibility Disclosures Among U.S. Firms. SSRN Electronic Journal. https://doi.org/10.2139/SSRN.970330
Inderst, G., & Stewart, F. (2018). Incorporating Environmental, Social and Governance (ESG) Factors into Fixed Income Investment. SSRN Electronic Journal. https://doi.org/10.2139/SSRN.3175830
Jensen, M. C. (2002). Value maximisation, Stakeholder theory and the corporate objective function. Business Ethics Quarterly, 12(2), 235–256. https://doi.org/10.2307/3857812
Kuzmina, J., & Lindemane, M. (2017). Development of Investment Strategy Applying Corporate Social Responsibility. Trends Economics and Management, 11(30), 37. https://doi.org/10.13164/TRENDS.2017.30.37
Li, Y., Gong, M., Zhang, X., & Koh, L. (2018). The impact of environmental, social, and governance disclosure on firm value: The role of CEO power. British Accounting Review, 50(1). https://doi.org/10.1016/j.bar.2017.09.007
Melinda, A., & Wardhani, R. (2020). The Effect of Environmental, Social, Governance, and Controversies on Firms’ Value: Evidence from Asia. International Symposia in Economic Theory and Econometrics, 27, 147–173. https://doi.org/10.1108/S1571-038620200000027011
Nadifah, R., Kusuma, D. P. I., & Arofah, riani. (2020). The Effect of Corporate Social Responsibility Disclosure, Leverage, and Free Cash Flow on Earnings Management. SAR (Soedirman Accounting Review): Journal of Accounting and Business, 5(1).
OECD. (2021). ESG Investing and Climate Transition: Market Practices, Issues and Policy Considerations. https://www.oecd.org/finance/ESG-investing-and-climate-transition-market-practices-issues-and-policy-considerations.pdf
Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42(3), 335–370. https://doi.org/10.1016/J.JACCECO.2006.01.002
Schroders. (2022, June 24). Schroders Global Investor Study 2022: ‘Expert’ investors more empowered to prioritise their values and principles. Schroders. https://www.schroders.com/en/global/media-relations/media-centre/schroders-global-investor-study-2022-expert-investors-more-empowered-to-prioritise-their-values-and-principles/
Simamora, A. J., Atika, & Muqorobin, M. M. (2022). Real Earnings Management And Firm Value: Examination Of Costs Of Real Earnings Management. Jurnal Akuntansi, 26(2), 240–262. https://doi.org/10.24912/ja.v26i2.935
Solimun. (2011). Analisis Variabel moderasi dan Mediasi. In Program Suti Statistika FMIPA Universitas Brawijaya. Malang.
Srivastava, A. (2019). Improving the Measures of Real Earnings Management. SSRN Electronic Journal. https://doi.org/10.2139/SSRN.2848167
Sulistyanto, S. (2008). Manajemen Laba: Teori dan Model Empiris. PT. Gramedia Widiasarana Indonesia.
Suri, A. G., Febrianto, R., & Widiastuty, E. (2023). Pengaruh Proporsi Wanita pada Dewan dan Kualitas Audit terhadap Real Earning Management pada Perusahaan BUMN di Indonesia. InFestasi, 19(1), 1–12. https://doi.org/10.21107/infestasi.v19i1.19396
Tulcanaza-Prieto, A. B., & Lee, Y. (2022). Real Earnings Management, Firm Value, and Corporate Governance: Evidence from the Korean Market. International Journal of Financial Studies, 10(1). https://doi.org/10.3390/ijfs10010019
Velayutham, E. (2018). Sustainability disclosure and earnings management. Research Handbook of Finance and Sustainability, 532–549. https://doi.org/10.4337/9781786432636.00037
Velte, P. (2020). Corporate Social Responsibility (CSR) and Earnings Management: A Literature Review. https://papers.ssrn.com/abstract=3755451
Whelan, C., & McNamara, R. (2004). The Impact of Earnings Management on the Value-relevance of Financial Statement Information. SSRN Electronic Journal. https://doi.org/10.2139/SSRN.585704
Widiastuty, E., & Soewarno, N. (2019). Csr expenditure and company performance: Charity or signal? Evidence from Indonesia. Quality Innovation Prosperity, 23(3), 22–37. https://doi.org/10.12776/QIP.V23I3.1273
Yoon, B., Lee, J. H., & Byun, R. (2018). Does ESG performance enhance firm value? Evidence from Korea. Sustainability (Switzerland), 10(10). https://doi.org/10.3390/SU10103635
Yu, E. P. yi, Guo, C. Q., & Luu, B. Van. (2018). Environmental, social and governance transparency and firm value. Business Strategy and the Environment, 27(7), 987–1004. https://doi.org/10.1002/BSE.2047
Published
2023-07-17
How to Cite
ADLAH, Adzhana; FEBRIANTO, Rahmat.
The Impact Of Environmental, Social and Governance on Corporate Value: The Role Of Real Earning Management As Moderating Variable.
SAR (Soedirman Accounting Review) : Journal of Accounting and Business, [S.l.], v. 8, n. 1, p. 76 - 90, july 2023.
ISSN 2598-0718.
Available at: <https://jos.unsoed.ac.id/index.php/sar/article/view/8270>. Date accessed: 19 mar. 2025.
doi: https://doi.org/10.32424/1.sar.2023.8.1.8270.
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Articles
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