Sustainable Development and Accounting Conservatism

At the corporate level, the role of sustainable development in financial reporting quality remains controversial. Drawing on stakeholder theory, this study examines a sample of Chinese A-share listed companies to investigate how sustainable performance, measured by firms’ environmental, social, and governance (ESG) performance, impacts accounting conservatism. Using a firm-level measure of conditional conservatism based on asymmetric earnings timeliness, empirical evidence shows that firms’ ESG performance is associated with higher levels of conditional conservatism, as reflected in all three ESG dimensions. When testing alternative approaches, such as an accrual-based proxy for accounting conservatism, the Sino-Securities Index ESG rating as a substitute, and techniques like propensity score matching and Heckman's two-stage model to tackle endogeneity, the results remain robust. Overall, this study contributes to the existing literature on the linkage between sustainable performance and financial reporting quality, and the findings provide practical implications for firms in adopting conservative accounting practices in response to ESG initiatives.