Do Sustainability Disclosures Lead to Opportunistic Behaviour? Empirical Evidence from India

The present study empirically examines the bi-directional relationship between sustainability disclosures and earnings quality under mandatory sustainability disclosures regime for India, a developing country. It considers both the qualitative and quantitative measurements of sustainability disclosures. Earlier research only explored such relationships assuming a unidirectional approach, under voluntary sustainability disclosure setting with quantitative measurements of sustainability disclosures for developed countries. The study employs the generalised method of moments (GMM) approach on selected listed companies for the period 2013–2019. The result shows a negative bi-directional relationship between sustainability disclosures quality and earnings quality which also hold when tested with an alternate earnings quality measure. The result confirms that firms focusing on sustainability disclosures will also be manipulating earnings because of opportunistic perspective. Also, firms manage earnings to use sustainability disclosures as their cover to protect themselves. The study offers theoretical contribution by empirically corroborating the agency theory based managerial opportunism hypothesis. It extends and validates the managerial opportunism hypothesis in a novel context and under mandatory sustainability disclosures setting. The findings offer strong policy implications to Indian regulators and other stakeholders regarding the unintended consequence of mandatory sustainability disclosures. JEL Codes: Q50, Q56, M48