Purpose This study examines the relationship between environmental, social and governance (ESG) performance and earnings quality (EQ) in large Italian listed companies, focusing on ESG as a governance and quality-enhancing mechanism. Design/methodology/approach The analysis is based on panel data from 51 firms over the period 2021–2023. A fixed-effects regression model is employed to control for unobservable firm-specific heterogeneity, with lagged ESG variables used as a robustness check to mitigate potential endogeneity concerns. ESG performance is measured using Refinitiv (LSEG) scores, while EQ is proxied by the Beneish M-Score, which captures the likelihood of earnings manipulation. Standard firm-level control variables are included. Findings The results indicate that higher ESG performance is associated with lower earnings manipulation and improved EQ. Among ESG dimensions, social and governance factors emerge as the main drivers, while the environmental component is not statistically significant. Research limitations/implications The relatively short time horizon and potential residual endogeneity limit causal inference. In addition, the Beneish M-Score represents an indirect proxy for EQ. Future research could extend the time frame and adopt alternative EQ measures and methods. Practical implications ESG practices act as governance and quality mechanisms, enhancing financial reporting reliability and transparency. Originality/value This study provides evidence from the Italian context and highlights the differentiated impact of ESG dimensions within a quality management perspective.
Luca et al. (Thu,) studied this question.