Earnings management and environmental performance in political cost perspective: an Indonesian case
by Alex Johanes Simamora
International Journal of Accounting, Auditing and Performance Evaluation (IJAAPE), Vol. 18, No. 3/4, 2022

Abstract: This study aims to examine the moderating role of industry sensitivity, profitability, and size of companies on the effect of environmental performance on earnings management. The samples are manufacturing companies listed on the Indonesian Stock Exchange and PROPER assessment 2015-2019. Based on the year-fixed effect regression, companies with lower environmental performance are more likely to manage earnings downward if companies are included in an environmentally sensitive industry and have higher profitability. This indicates that to avoid the political cost of lower environmental performance, companies in the environmentally sensitive industry and having higher profitability tend to manage earnings downward to reduce societal, regulators, and environmental activist attention and pressure. Surprisingly, companies with lower environmental performance are more likely to manage earnings downward for smaller companies than the bigger ones. This indicates that smaller companies with lower environmental performance have less market pressure to fulfil earnings targets and tend to manage earnings downward.

Online publication date: Wed, 19-Apr-2023

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