The impact of corporate environmental responsibility on earnings management: Empirical evidence from BRICS countries

This study aims to investigate the impact of corporate environmental responsibility on earnings management of firms in emerging countries including Brazil, Russia, India, China and South Africa. Quantitative research methods are used to analyze a research sample of 5,184 firm-year observations, with data collected from Thomson Reuters, Worldscope and World Development Indicators during the period 2002- 2019. Research results indicate that firms performing better in corporate environmental responsibility are often less likely to engage in earnings management. The robustness of the results is validated by employing a different proxy of earnings management and alternative regression techniques such as firm fixed effects and generalized method of moments. Furthermore, the study identifies and tests the underlying channel through which corporate environmental responsibility influences earnings management, namely information asymmetry. Our results have academic and practical significance, and provide important implications for improving the quality of financial reporting through promoting corporate environmental responsibility.