The Effect of Carbon Emissions Disclosure on Real Earnings Management with Financial Distress as a Moderating Variable

Fathan Abrar Abdalla; Nujmatul Laily; Helianti Utami; Sawitri Dwi Prastiti

doi:10.17977/jabe.v10i1.59965

The Effect of Carbon Emissions Disclosure on Real Earnings Management with Financial Distress as a Moderating Variable

Fathan Abrar Abdalla, Nujmatul Laily, Helianti Utami, Sawitri Dwi Prastiti

Abstract

Using financial distress as a moderating variable, this study sought to ascertain the relationship between a company's actual earnings management procedures and its corporate responsibility in declaring carbon emissions in Indonesia. The company's financial statements reports and sustainability reports are used in this study to evaluate the values of the variables under investigation. The exploratory quantitative technique is used to offer the test findings discussed in this study. Companies in the energy sector sub-industry that are listed on the Indonesia Stock Exchange for the 2019–2023 period make up the research sample. The Purposive Sampling method was employed in the sample determination process. The study's findings demonstrate that actual earnings management procedures are not much impacted by a company's disclosure of carbon emissions. Moreover, the poor financial condition of the company cannot moderate the influence of carbon emission disclosure on real earnings management. The disclosure of carbon emissions by companies is carried out as a manifestation of their responsibility towards the environment and the encouragement from society, particularly stakeholders, to maintain the company's image. The level of financial difficulty of the company is also not a driving factor for companies that disclose good carbon emission reporting to engage in earnings management practices. Companies are more likely to avoid social conflicts and political pressure in their carbon emission disclosure reporting. The presence of government regulations also plays a role, prompting companies to simultaneously prioritize non-financial reporting such as carbon emission disclosures to avoid disciplinary sanctions from the government and social pressure from the community. Companies that are financially struggling tend to not participate in good environmental disclosures, as they are more concerned about the loss of their resources than before. The implications of this research play an important role for stakeholders and the government to pressure companies to avoid earnings management practices and prioritize non-financial reporting such as carbon emission disclosure as a form of social responsibility

Keywords

Pengungkapan Emisi Karbon, Manajemen Laba Rill, Tingkat Kesulitan Keuangan

Full Text:

PDF

References

Adrianto, S., Balqis, I., Soetanto, C., & Ohyver, M. (2022). Cochrane orcutt method to overcome autocorrelation in modeling factors affecting the number of hotel visitors in Indonesia.

Akhiroh, T., Akuntansi, J., Ekonomi, F., & Unnes, F. (2016). Accounting Analysis Journal The Determinant Of Carbon Emission Disclosures Article History. AAJ, 5(4). http://journal.unnes.ac.id/sju/index.php/aaj

Akter, A., Wan Yusoff, W. F., & Abdul-Hamid, M. A. (2024). The moderating role of board diversity on the relationship between ownership structure and real earnings management. Asian Journal of Accounting Research, 9(2), 98–115. https://doi.org/10.1108/AJAR-10-2022-0307

Al Shetwi, M. (2020). Earnings Management in Saudi Nonfinancial Listed Companies. International Journal of Business and Social Science, 11(1). https://doi.org/10.30845/ijbss.v11n1p3

Ali, B., & Kamardin, H. (2018). Real Earnings Management: A Review of Literature and Future Research. Asian Journal of Finance & Accounting, 10(1), 440. https://doi.org/10.5296/ajfa.v10i1.13282

Almubarak, W. I., Chebbi, K., & Ammer, M. A. (2023a). Unveiling the Connection among ESG, Earnings Management, and Financial Distress: Insights from an Emerging Market. Sustainability (Switzerland), 15(16). https://doi.org/10.3390/su151612348

Almubarak, W. I., Chebbi, K., & Ammer, M. A. (2023b). Unveiling the Connection among ESG, Earnings Management, and Financial Distress: Insights from an Emerging Market. Sustainability (Switzerland), 15(16). https://doi.org/10.3390/su151612348

Al-Thuneibat, A. A., Al-Angari, H. A., & Al-Saad, S. A. (2016). The effect of corporate governance mechanisms on earnings management: Evidence from Saudi Arabia. Review of International Business and Strategy, 26(1), 2–32. https://doi.org/10.1108/RIBS-10-2013-0100

Andreou, P. C., Philip, D., & Robejsek, P. (2016). Bank Liquidity Creation and Risk-Taking: Does Managerial Ability Matter? Journal of Business Finance and Accounting, 43(1–2), 226–259. https://doi.org/10.1111/jbfa.12169

Astari, A. (2020). Pengaruh Manajemen Laba Terhadap Pengungkapan Emisi Karbon Dengan Corporate Governance Sebagai Variabel Moderasi. Repository.Ub.Ac.Id.

Aulia, A., Febriyanti, F., & Umi, L. P. (2023). Trend Analysis Of ESG Disclosure On Green Finance Performance In Indonesia, Malaysia & Singapore Exchanges. JAK (Jurnal Akuntansi) Kajian Ilmiah Akuntansi, 10(1), 79–98. https://doi.org/10.30656/jak.v10i1.5439

Bae Choi, B., Lee, D., & Psaros, J. (2013). An analysis of Australian company carbon emission disclosures. Pacific Accounting Review, 25(1), 58–79. https://doi.org/10.1108/01140581311318968

Bilal, Tan, D., Komal, B., Ezeani, E., Usman, M., & Salem, R. (2022). Carbon emission disclosures and financial reporting quality: Does ownership structure and economic development matter? Environmental Science and Policy, 137, 109–119. https://doi.org/10.1016/j.envsci.2022.08.004

Budi, A., & Anggraeni, R. (2023). Determinan Asimetri Informasi Terhadap Praktik Manajemen Laba. Dynamic Management Journal ISSN, 7(1), 2580–2127. https://doi.org/10.31000/dmj.v7i1

Bui, B., Houqe, M. N., & Zaman, M. (2020). Climate governance effects on carbon disclosure and performance. British Accounting Review, 52(2). https://doi.org/10.1016/j.bar.2019.100880

Callao, S., Jarne, J., & Wróblewski, D. (2014). The development of earnings management research A review of literature from three different perspectives. Zeszyty Teoretyczne Rachunkowości, 2014(79(135)), 135–177. https://doi.org/10.5604/16414381.1133395

Chithambo, L., & Tauringana, V. (2014). Company specific determinants of greenhouse gases disclosures. Journal of Applied Accounting Research, 15.

Depoers, F., Jeanjean, T., & Jérôme, T. (2016). Voluntary Disclosure of Greenhouse Gas Emissions: Contrasting the Carbon Disclosure Project and Corporate Reports. Journal of Business Ethics, 134(3), 445–461. https://doi.org/10.1007/s10551-014-2432-0

Detik Finance. (2020, December 10). Diduga Manipulasi Laporan Keuangan, GE Didenda Rp 2,8 T. Www.Finance,Detik.Com.

Dye, J., McKinnon, M., & Van der Byl, C. (2021). Green Gaps: Firm ESG Disclosure and Financial Institutions’ Reporting Requirements. Journal of Sustainability Research, 3(1). https://doi.org/10.20900/jsr20210006

Emmanuel, Y. L., Adenikinju, O., Doorasamy, M., Ayoola, T. J., Oladejo, A. O., Kwarbai, J. D., & Otekunrin, A. O. (2023). Carbon Emission Disclosure and Financial Performance of Quoted Nigerian Financial Services Companies. International Journal of Energy Economics and Policy, 13(6), 628–635. https://doi.org/10.32479/ijeep.14895

Galán-Valdivieso, F., Saraite-Sariene, L., Alonso-Cañadas, J., & Caba-Pérez, M. del C. (2019). Do corporate carbon policies enhance legitimacy? A social media perspective. Sustainability (Switzerland), 11(4). https://doi.org/10.3390/su11041161

Garfatta, R. (2021). Corporate Social Responsibility and Earnings Management: Evidence from Saudi Arabia after Mandatory IFRS Adoption*. Journal of Asian Finance, 8(9), 189–0199. https://doi.org/10.13106/jafeb.2021.vol8.no9.0189

Gavana, G., Gottardo, P., & Moisello, A. M. (2017). Earnings management and CSR disclosure. Family vs. non-family firms. Sustainability (Switzerland), 9(12). https://doi.org/10.3390/su9122327

Gerged, A. M., Al-Haddad, L. M., & Al-Hajri, M. O. (2020a). Is earnings management associated with corporate environmental disclosure?: Evidence from Kuwaiti listed firms. Accounting Research Journal, 33(1), 167–185. https://doi.org/10.1108/ARJ-05-2018-0082

Gerged, A. M., Al-Haddad, L. M., & Al-Hajri, M. O. (2020b). Is earnings management associated with corporate environmental disclosure?: Evidence from Kuwaiti listed firms. Accounting Research Journal, 33(1), 167–185. https://doi.org/10.1108/ARJ-05-2018-0082

Graham, J. R., Hanlon, M., Shevlin, T., Shroff, N., Blouin, J., Hoopes, J., Hui Hsu, P., Koester, A., Lester, B., Lisowsky, P., Maydew, E., Wilson, R., Yost, B., Erickson, M., Klassen, K., Merrill, P., Mills, L., Rego, S., Sansing, R., … Slemrod, J. (2013). Incentives for Tax Planning and Avoidance: Evidence from the Field-Forthcoming at The Accounting Review.

Habbash, M., & Alghamdi, S. (2017). Audit quality and earnings management in less developed economies: the case of Saudi Arabia. Journal of Management and Governance, 21(2), 351–373. https://doi.org/10.1007/s10997-016-9347-3

Habbash, M., & Haddad, L. (2020). The impact of corporate social responsibility on earnings management practices: evidence from Saudi Arabia. Social Responsibility Journal, 16(8), 1073–1085. https://doi.org/10.1108/SRJ-09-2018-0232

Habib, A., Uddin Bhuiyan, B., & Islam, A. (2013). Financial distress, earnings management and market pricing of accruals during the global financial crisis. Managerial Finance, 39(2), 155–180. https://doi.org/10.1108/03074351311294007

Harymawan, I., Putra, F. K. G., Fianto, B. A., & Wan Ismail, W. A. (2021). Financially distressed firms: Environmental, social, and governance reporting in indonesia. Sustainability (Switzerland), 13(18). https://doi.org/10.3390/su131810156

Hope, O.-K., Thomas, W., & Vyas, D. (2013). Financial Reporting Quality of U.S. Private and Public Firms. The Accounting Review.

Houqe, M., Opare, S., & Hassan, M. (2023). Carbon emissions, female CEOs and earnings management. International Journal of Accounting & Information Management, 32.

Huda, C., Agriyanto, R., Lestari, H. S., & Pangayow, B. (2021). Financial distress as a moderating variable of the influence of audit opinion and public accounting firm size on voluntary auditor switching. Journal of Islamic Accounting and Finance Research, 3(2), 155–176. https://doi.org/10.21580/jiafr.2021.3.2.8609

Irwandi, S., Faisal, I., & Pamungkas, I. (2019). Detection Fraudulent Financial Statement: Beneish M-Score Model.

Jordaan, L. A., De Klerk, M., De Villiers, C. J., & Jordaan, L. (2018). South African Journal of Economic and Management Sciences. https://doi.org/10.4102/sajems

Kelvin, C., Ng, S., & Daromes, F. (2017). Pengungkapan Emisi Karbon Sebagai Mekanisme Peningkatan Kinerja untuk Menciptakan Nilai Perusahaan. Dinamika Akuntansi, Keuangan Dan Perbankan.

Krishnamurti, C., & Velayutham, E. (2018). The influence of board committee structures on voluntary disclosure of greenhouse gas emissions: Australian evidence. Pacific Basin Finance Journal, 50, 65–81. https://doi.org/10.1016/j.pacfin.2017.09.003

Lemma, T. T., Shabestari, M. A., Freedman, M., & Mlilo, M. (2020). Corporate carbon risk exposure, voluntary disclosure, and financial reporting quality. Business Strategy and the Environment, 29(5), 2130–2143. https://doi.org/10.1002/bse.2499

Li, X., Than, E., Ahmed Rizwan, Ishaque, M., & Huynh, T. (2023). Gender diversity of boards and executives on real earnings management in the bull or bear period: Empirical evidence from China. International Journal of Finance and Economics, 28(3), 2753–2771. https://doi.org/10.1002/ijfe.2562

Li, Y., Li, X., Xiang, E., & Geri Djajadikerta, H. (2020). Financial distress, internal control, and earnings management: Evidence from China. Journal of Contemporary Accounting and Economics, 16(3). https://doi.org/10.1016/j.jcae.2020.100210

Lizińska, J., & Czapiewski, L. (2023). Earnings Management amid the COVID-19 Financial Crisis: The Experience of Poland. Gospodarka Narodowa, 313(1), 93–112. https://doi.org/10.33119/gn/159032

Majid, M., Lysandra, S., Masri, I., & Azizah, W. (2020). Pengaruh Kecakapan Manajerial Terhadap Manajemen Laba Akrual dan Riil. Jurnal Ilmiah Akuntansi Dan Manajemen (JIAM), 16(1). http://finance.detik.com

Martin, B., & Indrati, M. (2024). Pengaruh Kesulitan Keuangan, Profitabilitas dan Dewan Komisaris Independen terhadap Penghindaran Pajak. Jesya, 7(2), 1445–1557. https://doi.org/10.36778/jesya.v7i2.1698

Martínez-Ferrero, J., Garcia-Sanchez, I. M., & Cuadrado-Ballesteros, B. (2015). Effect of financial reporting quality on sustainability information disclosure. Corporate Social Responsibility and Environmental Management, 22(1), 45–64. https://doi.org/10.1002/csr.1330

Muttakin, M. B., Khan, A., & Azim, M. I. (2015). Corporate social responsibility disclosures and earnings quality: Are they a reflection of managers’ opportunistic behavior? Managerial Auditing Journal, 30(3), 277–298. https://doi.org/10.1108/MAJ-02-2014-0997

Mutuc, E. B., Lee, J. S., & Tsai, F. S. (2019). Doing good with creative accounting? Linking corporate social responsibility to earnings management in market economy, country and business sector contexts. Sustainability (Switzerland), 11(17). https://doi.org/10.3390/su11174568

Narsa, N. P. D. R. H., Afifa, L. M. E., & Wardhaningrum, O. A. (2023). Fraud triangle and earnings management based on the modified M-score: A study on manufacturing company in Indonesia. Heliyon, 9(2). https://doi.org/10.1016/j.heliyon.2023.e13649

Nasution, L. (2017). STATISTIK DESKRIPTIF.

Nihayah, A. (2019). Pengolahan Data Penelitian Menggunakan Software SPSS 23.0.

Nuber, C., Velte, P., & Hörisch, J. (2019). The curvilinear and time‐lagging impact of sustainability performance on financial performance: Evidence from Germany. Corporate Social Responsibility and Environmental Management, 27.

Rachel Muljono, D., & Sung Suk, K. (2018). Impacts of Financial Distress on Real and Accrual Earnings Management. In Jurnal Akuntansi: Vol. XXII (Issue 02).

Ranjbar, S., & Amanollahi, G. F. (2018). The effect of financial distress on earnings management and unpredicted net earnings in companies listed on Tehran Stock Exchange. Management Science Letters, 8(9), 933–938. https://doi.org/10.5267/j.msl.2018.6.015

Rankin, M., Windsor, C., & Wahyuni, D. (2011). An investigation of voluntary corporate greenhouse gas emissions reporting in a market governance system: Australian evidence. Accounting, Auditing and Accountability Journal, 24(8), 1037–1070. https://doi.org/10.1108/09513571111184751

Repousis, S. (2016). Using Beneish model to detect corporate financial statement fraud in Greece. Journal of Financial Crime, 23(4), 1063–1073. https://doi.org/10.1108/JFC-11-2014-0055

Rezaee, Z., & Tuo, L. (2019). Are the Quantity and Quality of Sustainability Disclosures Associated with the Innate and Discretionary Earnings Quality? Journal of Business Ethics, 155(3), 763–786. https://doi.org/10.1007/s10551-017-3546-y

Roychowdhury, S. (2006). Earnings Management through Real Activities Manipulation. Journal of Accounting and Economics.

Salewski, M., & Zülch, H. (2014). The Association between Corporate Social Responsibility and Earnings Quality Evidence from European Blue Chips. http://ssrn.com/abstract=2141768Electroniccopyavailableat:https://ssrn.com/abstract=2141768Electroniccopyavailableat:http://ssrn.com/abstract=2141768

Scholtens, B., & Kang, F. C. (2013). Corporate Social Responsibility and Earnings Management: Evidence from Asian Economies. Corporate Social Responsibility and Environmental Management, 20(2), 95–112. https://doi.org/10.1002/csr.1286

Shang, Y., & Chi, Y. (2023). Corporate Environmental Information Disclosure and Earnings Management in China: Ethical Behaviour or Opportunism Motivation? Sustainability (Switzerland), 15(11). https://doi.org/10.3390/su15118896

Spence, M. (1973). Job Market Signaling. In Source: The Quarterly Journal of Economics (Vol. 87, Issue 3).

Sun, L., & Al Farooque, O. (2018). An exploratory analysis of earnings management practices in Australia and New Zealand. International Journal of Accounting and Information Management, 26(1), 81–114. https://doi.org/10.1108/IJAIM-09-2016-0087

Tarus, D. K., & Korir, F. J. (2023). Does CEO narcissism matter? An examination of the relationship between board structure and earnings management in Kenya. PSU Research Review. https://doi.org/10.1108/PRR-07-2022-0089

Teixeira, J. F., & Rodrigues, L. L. (2022). Earnings management: a bibliometric analysis. In International Journal of Accounting and Information Management (Vol. 30, Issue 5, pp. 664–683). Emerald Publishing. https://doi.org/10.1108/IJAIM-12-2021-0259

Uddin, M. H. (2023). The moderating role of COVID-19 pandemic on the relationship between CEO characteristics and earnings management: evidence from Bangladesh. Cogent Business and Management, 10(1). https://doi.org/10.1080/23311975.2023.2190196

Velte, P. (2021). Environmental performance, carbon performance and earnings management: Empirical evidence for the European capital market. Corporate Social Responsibility and Environmental Management, 28(1), 42–53. https://doi.org/10.1002/csr.2030

Yung, K., & Chen, C. (2018). Managerial ability and firm risk-taking behavior. Review of Quantitative Finance and Accounting, 51(4), 1005–1032. https://doi.org/10.1007/s11156-017-0695-0

DOI: http://dx.doi.org/10.17977/jabe.v10i1.59965