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Environmental performance, carbon performance and earnings management: Empirical evidence for the European capital market

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  • Patrick Velte

Abstract

The purpose of this study is to examine the relationship between environmental performance, carbon performance and earnings management. This analysis includes panel regressions as empirical‐quantitative (archival) research methods and looks at the 2014–2018 financial years of companies listed on the STOXX Europe 600 (1,509 firm‐year observations). Environmental (carbon) performance proxies are included as independent variables, and with two earnings quality measures, accrual‐based earnings management (ACC) and real earnings management (REM) as dependent variables. Our findings align with prior research on sustainability performance and indicate that environmental (carbon) performance reduces ACC but increases REM. After including Granger causality tests, we find no indications of a bidirectional relationship. This analysis makes a key contribution to prior studies as this appears to be the first on the relationship between environmental (carbon) performance and earnings management in the European capital market. The study has major implications for business practice, regulators and research. Managers might use environmental and carbon strategies for greenwashing policies as this change in earnings management can be hardly detected by other stakeholders.

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  • Patrick Velte, 2021. "Environmental performance, carbon performance and earnings management: Empirical evidence for the European capital market," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(1), pages 42-53, January.
    • Handle: RePEc:wly:corsem:v:28:y:2021:i:1:p:42-53
    DOI: 10.1002/csr.2030
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    3. Yujin Kim & Su-In Kim, 2022. "Environmental Risk and Credit Ratings, and the Moderating Effect of Market Competition," IJERPH, MDPI, vol. 19(9), pages 1-17, April.
    4. Yong-Shik Kim, 2023. "The Association between Voluntary Carbon Disclosure and Accounting Comparability: Examining the Moderating Effect of Korean Business Groups," Sustainability, MDPI, vol. 15(6), pages 1-17, March.
    5. Ali Uyar & Simone Pizzi & Fabio Caputo & Cemil Kuzey & Abdullah S. Karaman, 2022. "Do shareholders reward or punish risky firms due to CSR reporting and assurance?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1596-1620, July.
    6. Wu, Zhenshu, 2023. "Essays in corporate finance and ESG," Other publications TiSEM fe6f9604-d0c5-46f3-9492-f, Tilburg University, School of Economics and Management.
    7. Zhao‐Yong Sun & Meng‐Jie Li & Dongdong Li, 2023. "Carbon performance and corporate financial performance: The moderating role of consumer awareness of corporate social responsibility," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 663-670, January.
    8. Patrick Velte, 2023. "Sustainable institutional investors, corporate sustainability performance, and corporate tax avoidance: Empirical evidence for the European capital market," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(5), pages 2406-2418, September.
    9. Su-In Kim & Yujin Kim, 2023. "Climate Risk, Stock Crash Risk, and Greenhouse Gas Emission Trading Scheme: Evidence From Korea," SAGE Open, , vol. 13(4), pages 21582440231, November.
    10. Samuel Adomako & Mai Dong Tran, 2023. "Doing well and being responsible: The impact of corporate social responsibility legitimacy on responsible entrepreneurship," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 1794-1804, July.
    11. Chunya Ren & Irene Wei Kiong Ting & Wen‐Min Lu & Qian Long Kweh, 2022. "Nonlinear effects of ESG on energy‐adjusted firm efficiency: Evidence from the stakeholder engagement of apple incorporated," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(5), pages 1231-1246, September.
    12. Eugene Yin Cheung Wong & Danny C. K. Ho & Stuart So & Mark Ching‐Pong Poo, 2022. "Sustainable consumption and production: Modelling product carbon footprint of beverage merchandise using a supply chain input‐process‐output approach," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(1), pages 175-188, January.
    13. Ibrahim Khalifa Elmghaamez & Jacinta Nwachukwu & Collins G. Ntim, 2024. "ESG disclosure and financial performance of multinational enterprises: The moderating effect of board standing committees," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3593-3638, July.
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