WSEAS Transactions on Business and Economics

Print ISSN: 1109-9526
E-ISSN: 2224-2899

Volume 16, 2019

Notice: As of 2014 and for the forthcoming years, the publication frequency/periodicity of WSEAS Journals is adapted to the 'continuously updated' model. What this means is that instead of being separated into issues, new papers will be added on a continuous basis, allowing a more regular flow and shorter publication times. The papers will appear in reverse order, therefore the most recent one will be on top.

Volume 16, 2019

The Associations Between Earnings Management, Corporate Environmental Disclosure, Corporate Financial Performance and Corporate Governance Mechanisms

AUTHORS: St. Dwiarso Utomo, Zaky Machmuddah, Melati Oktafiyani

Download as PDF

ABSTRACT: The aim of the study is to investigate the associations between earnings management (DA), corporate environmental disclosure (CED), corporate financial performance (CFP), and corporate governance (CG) mechanisms. Using Partial Least Squares-Structural Equation Modelling (SEM), the study obtains empirical findings consistent with all hypotheses. DA has a positive effect on both CED and CFP; CED has a positive effect on CFP; and CG partially mediates the effect of DA on CFP. CG, as measured by institutional ownership and the number of audit committees, weakens the association between DA and CFP. However, CG, as measured by the proportion of independent commissioners, is not able to weaken the association of DA and CFP. Therefore, CG does not fully moderate the relationship between DA and CFP. It is recommended that control variables be used in order to clarify the effect of latent variables in future studies.

KEYWORDS: Earnings management, corporate environmental disclosure, corporate financial performance, and corporate governance mechanism.


[1] Waseemullah, Safi. I. and Shehzadi, A. Earnings management and firm performance: a case of karachi stock exchange listed firms in Pakistan. International journal of economics and empirical study.Vol. 3, No. 6, 2015, pp. 278-285.

[2] Gill, A., Biger, N., Harvinder, S. M., and Neil, M. Earning mangement, firm performance and the value of Indian manufacturing firm. International study journal of finance and economics. 2013. ISSN 1450-2887 Issue 116.

[3] Sun, N., Salama, A., Hussainey, K., and Habbash, M. Corporate environmental disclosure, corporate governance and earnings management. Managerial auditing journal. Vol. 25 No. 7, 2010. pp. 679-700.

[4] Prior, D., Surroca, J. and Tribo, J.A. Are socially responsible managers really ethical? exploring the relationship between earnings management and corporate social responsibility, corporate governance. An international review.Vol. 16, No. 3, 2008. pp. 443-459.

[5] Chih, H., Shen, C., and Kang, F. Corporate social responsibility, investor protection, and earnings management: some international evidence. Journal of business ethics. Vol. 79. 2008. pp. 179-198.

[6] Bergstresser and Phillippon. CEO incentive and earnings management. Journal of financial economics, Vol. 80. 2006. pp. 511-529.

[7] Kang, S. and Kim, Y. Does earnings management amplify the association between corporate governance and firm performance. International business and economics study journal. Vol. 10, No. 2. 2011. pp. 53-66.

[8] Healy, P.M. and Wahlen, J.M. A review of the earnings management literature and its implications for standard setting. Accounting horizons. Vol. 13, No. 4. 1999. pp. 365-383.

[9] Organisation for economic co-operation and development (OECD) principles of corporate governance. 2004.

[10] Bedi, H. S. Financial performance and social responsibility: Indian scenario. Working Study, viewed 29 December 2010,

[11] Cornett M. M, J. Marcuss, Saunders and Tehranian H. Earnings management, corporate governance, and true financial performance. 2006.

[12] Kothari, S.P., Leone, A, and Wasley, C. Performance matched discretionary accrual measures. 2005.

[13] Wolk, H.I., M.G Tearney., J.L. Dold. Accounting theory. South western College Publishing: Thomson Learning. 2001.

[14] Gray, R. Taking a long view on what we now know about social and environmental accountability and reporting. Electronic journal of radical organisation theory. Vol. 9. 2005. pp. 1-31.

[15] Jensen, M.C. and Meckling, W.H. Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of financial economics. Vol. 3. 1976. pp. 305-360.

[16] Hill, C.W. and Jones, T.M. Stakeholder agency theory. Journal of management studies. Vol. 29, 1992. pp. 131-154.

[17]Freeman, R.E., and J. McVea. A stakeholder approach to strategi management. 2001.

[18] Fischer, Marily, and Kenneth Rosenzweig. Attitude of students and accounting practitioners concerning the ethical acceptability of earnings management. Journal of business ethics. Vol. 14. 1995. pp. 433–444.

[19] Zahra, S. A., R.L. Priem dan A. A. Rasheed. The antecedents and consequences of top management fraud. Journal of management. Vol. 31. 2005. Pp. 803–828.

[20] Warfield, T. D., Wild, J. J. and Wild, K.L. Managerial ownership, accounting choices, and informativeness of earnings. Journal of accounting and economics. Vol. 20. 1995. pp. 61- 91.

[21] Klein, A. Audit committee, board of director characteristics, and earnings management. Journal of accounting and economicas. Vol. 33 No. 3. 2002. pp. 375-401.

[22] Hassan, S. U. and Ahmed, A. Corporate governance, earnings management and financial performance: a case of Nigerian manufacturing firms. American international journal of contemporary study. Vol. 2. No. 7. 2012. pp. 214-226.

[23] Claessens, S., Simeon D., Lerry, H.P.L. The separation of ownership and control in east Asian corporation. Journal of financial economics. Vol. 58. 2000. pp. 81-112.

[24] Weisbach, M. Outside directors and CEO turnover. Journal of financial economics. Vol. 20. 1988. pp. 431-460.

[25] Roodposhti, F. R. and Chasmi S. A. Impact of corporate governance mechanism on earnings management. African Journal of Business Management. Vol. 5. No. 11. 2011. pp. 4143- 4151.

[26] Naimi, M., R., S., and W. N. Hussin. Corporate governance and audit report lag in Malaysia. Asian academy of management journal of accounting and finance. Vol. 6. 2010. pp. 57–84.

[27] Xie, B., Davidson, D. III and DaDalt, P.J. Earnings management and corporate governance: the role of the board and the audit committee. Journal of corporate finance. Vol. 9. 2003. pp. 295-316.

[28] Ittner, Christopher D., David F. Larcker, and Madhav V. Rajan. The choice of performance measures in annual bonus contracts. Accounting review.1997. pp. 231-255.

[29] Papadopoulos, Savas, and Yasuo Amemiya. Correlated samples with fixed and nonnormal latent variables. The Annals of Statistics. Vol. 33. No. 6. 2005. pp. 2732-2757.

[30] Lee, L., Petter, S., Fayard, D., Robinson, S. On the use of partial least squares path modeling in accounting study. International journal of accounting information systems. Vol. 12. No. 4. 2011. pp. 305-328.

[31] Hair, J., W. Black, B. Babin, and R. Anderson. Multivariate data analysis: a global perspective (7th edition). New Jersey: Pearson. 2010.

[32] Wold, Svante, et al. The collinearity problem in linear regression. The partial least squares (PLS) approach to generalized inverses. SIAM journal on scientific and statistical computing. Vol. 5. No. 3. 1974. pp. 735-743.

[33] Bowman, E.H., and Haire, M.A. A strategic posture towards corporate social responsibility. California management review. Vol. 18, No. 2. 1975. pp. 49-58.

[34] Alexander, G. J., and Buchholz, R.A. Corporate social responsibility and stick market performance. Academy of management journal. Vol. 21. 1978. pp. 478-486.

[35] Ullmann, A. A. Data in search of theory: a crtitical examination of the relationships among social performance, socil disclosure and economic performance of US firms. Academy of management review. Vol. 10, No. 3. 1985. Pp. 540-557.

[36] McGuire, I., Sundgren, A., and Schneeweiss, T. Corporate social responsibility and firm financial performance. Academy of management journal. Vol. 31. 1988. Pp. 854-872.

[37] Salama, A. A note on the impact of environmental performance on financial performance. Structural change and economics dynamics. Vol. 16. 2005. Pp. 413-421.

[38] Baron, R. M., and Kenny, D. A. The moderator – mediator variable distinction in social psychological study: Conceptual, strategic, and statistical considerations. Journal of personality and social psychology. Vol. 51, No. 6. 1986. Pp. 1173–1182.

[39] Kock, N. Using wrpPLS in e-collaboration studies: mediating effects, control and second order variables, and algorithm choices. International journal of e-collaboration. Vol. 7, No. 3. 2011.1- 13.

[40] Wild, J. The audit committee and earnings quality. Journal of accounting, auditing and finance. Vol. 11. 1996. Pp. 247-276.

[41] Dechow, P., Sloan, R., and Sweeney, A. Detecting earnings management. The accounting review. Vol. 70. 1995. Pp. 193-225.

WSEAS Transactions on Business and Economics, ISSN / E-ISSN: 1109-9526 / 2224-2899, Volume 16, 2019, Art. #39, pp. 345-354

Copyright Β© 2018 Author(s) retain the copyright of this article. This article is published under the terms of the Creative Commons Attribution License 4.0