Sustainability Reporting and Earnings Management: Evidence from State-Owned Firms of an Emerging Economy

This study investigates the relationship between sustainability reporting and earnings management in the context of state-owned manufacturing enterprises (SOEs) in Bangladesh, an emerging economy where governance structures and reporting practices remain under significant scrutiny. Using panel data from 17 manufacturing SOEs listed in Bangladesh for the period 2018–2023, this study applies a content analysis approach based on Global Reporting Initiative (GRI) standards to construct a sustainability reporting index. Earnings management is measured through discretionary accruals, while several board and firm-specific variables are controlled for in the analysis. Both OLS and Fixed Effects models have been used to test the hypothesis. Initial findings show an increasing trend in sustainability reporting by the SOEs. The regression results reveal that sustainability reporting significantly affects earnings management, though the direction of the association is mixed across contexts. Consistent with legitimacy theory, greater sustainability disclosure is found to reduce incentives for earnings manipulation by enhancing transparency and stakeholder trust. These findings contribute to the growing literature on sustainability disclosure in developing economies by highlighting the dual role of sustainability reporting in curbing and, at times, facilitating earnings management. The study provides practical insights for regulators, policymakers, and managers aiming to strengthen accountability and foster sustainable governance in Bangladesh’s state-owned enterprise sector.