Real earnings management and ESG disclosure in emerging markets: The moderating effect of managerial ownership from a social norm perspective

Abstract

Drawing on social norm theory, this study delves into the nexus between real earnings manipulation (REM) and Environmental, Social, and Governance (ESG) disclosure within Egypt's emerging capital market. By analyzing data from the S&P/EGX ESG index (2013–2018) through a two-stage regression analysis, we unearth a noteworthy pattern: heightened REM practices correspond with reduced tendencies for ESG sustainability disclosure. Notably, this association is moderated by managerial ownership, which diminishes the negative linkage between REM and ESG transparency. A unique cultural insight emerges, revealing that religiously-aligned firms leverage REM as a risk-mitigation mechanism, leading to curtailed ESG disclosures. Our findings cast a spotlight on a possible managerial tilt towards short-term gains, often overshadowing long-term sustainability imperatives, especially in religiously influenced contexts. As we advance understanding of REM-ESG dynamics in religious emerging markets, our study highlights the pressing need for enhanced sustainability consciousness and accountability in these regions.

Keywords

• Real earnings management
• ESG sustainability disclosure
• Emerging markets
• Social norm theory