Peer ESG controversies and enterprise earnings management

High-quality development necessitates a reliable supply of accounting information. The earnings management serving as a pivotal factor influencing the quality of corporate accounting information. From the perspective of earnings management, this study empirically examines the impact of peer ESG controversies on the corporate accounting information quality, utilizing data from A-share listed companies in Shanghai and Shenzhen, China, spanning from 2018 to 2022. The study reveals that peer ESG controversies can significantly constrain enterprise earnings management, and this research conclusion remains valid after a series of robustness checks. Mechanism analysis indicates that “market competition motivation” and “information advantage motivation” are the two primary channels through which the effect is exerted. Furthermore, this paper examines two moderating effects from dual perspectives. The external monitoring environment perspective reveals a positive moderating effect of public environmental claims on the relationship. The internal organizational environment perspective shows a negative moderating effect of internal control quality on the relationship. And public environmental claims and internal quality control collectively exhibit a compounding effect on the relationship. Moreover, this paper further uncovers that while peer ESG controversies curb the enterprise accrual-based earnings management, they do not prompt a shift towards more concealed real earnings management. In other words, there is no substitution effect between accrual-based earnings management and real earnings management. This paper enriches the research literature on ESG risks and earnings management. It provides empirical evidence for refining ESG information disclosure regulations. Additionally, it offers decision-making insights to address opportunistic behavior among listed companies.