The Effects of ESG, Corporate Governance, and Firm Attributes on Earning Quality Through Earning Management in Non-Banking State-Owned Enterprises

Abstract

Earnings quality is essential for ensuring that reported profits accurately reflect a company’s underlying economic performance, particularly in Indonesian non-banking state-owned enterprises that operate under multiple economic and public-service responsibilities. This study examined the effects of Environmental, Social, and Governance (ESG), corporate governance, and firm attributes on earnings quality, with earnings management as a mediating variable. A quantitative associative design was employed using secondary data obtained from the corporate reports of 17 non-banking state-owned enterprises selected through purposive sampling over the 2020–2024 period, yielding 85 firm-year observations. The data were analyzed using descriptive statistics and partial least squares structural equation modeling (PLS-SEM). The findings showed that ESG and corporate governance had significant negative effects on earnings quality, whereas firm attributes had a significant positive effect. Earnings management did not have a significant effect on earnings quality. ESG had a significant negative effect on earnings management, while corporate governance had a significant positive effect on earnings management; firm attributes had no significant effect on earnings management. Furthermore, earnings management did not mediate the effects of ESG, corporate governance, or firm attributes on earnings quality. These findings indicate that formal ESG disclosure and corporate governance mechanisms may not yet have been substantively integrated into financial reporting practices. The study concludes that non-banking state-owned enterprises should strengthen the substantive implementation of ESG and corporate governance through effective internal controls and transparent financial reporting.