Ownership, audit quality, and earnings credibility under ESG conditions: evidence from Indonesian Sharia manufacturing firms

This study examines how ownership structure, audit quality, and ESG performance jointly influence earnings credibility in Indonesian Sharia manufacturing firms. Using data from 45 firms during 2020–2024 and applying Structural Equation Modeling–Partial Least Squares (SEM-PLS), the study simultaneously estimates direct, mediating, and moderating relationships among multidimensional governance construct. The findings reveal that ownership structure significantly strengthens audit quality, highlighting the monitoring role of institutional, managerial, and foreign ownership. Audit quality is negatively associated with accrual-based earnings quality measures, indicating stronger reporting discipline, lower discretionary accruals, and greater accounting conservatism rather than reduced reporting quality. Mediation analysis further identifies audit quality as the primary governance mechanisms through which ownership structure enhances earnings credibility. Although ESG exhibits a directionally negative moderating effect on the ownership-audit relationship, the evidence suggests that its governance role is conditional rather than universally complementary or substitution. Moreover, ESG does not significantly moderate the relationship between audit quality and earning credibility, implying that professional audit oversight remains largely independent of firms’ ESG orientation. The study extends governance literature by refining the governance-substitution framework through the integration of Agency, Legitimacy, and Stakeholder theories, demonstrating that governance effectiveness arises from interactions among governance mechanisms within emerging market institutional settings.