Sustainable Governance or Symbolic Compliance? The Effect of ESG Pillars on Real Earnings Management in ASEAN-5

Abstract

Environmental, social, and governance (ESG) performance has become an important indicator of corporate sustainability, yet its relationship with real earnings management (REM) remains inconclusive, particularly in emerging Southeast Asian markets. This study examines the effects of aggregate ESG performance and its environmental, social, and governance pillars on REM among listed firms in ASEAN-5 countries. Using purposive sampling, the study analyzes 271 firms comprising 813 firm-year observations from Indonesia, Malaysia, Singapore, Thailand, and the Philippines during 2020–2022. ESG data were obtained from Refinitiv, while financial data were sourced from OSIRIS. REM was measured using Roychowdhury’s framework, based on abnormal cash flow from operations, abnormal discretionary expenses, and abnormal production costs. Fixed-effects panel regressions were estimated with firm size, leverage, and profitability as control variables. The results show that aggregate ESG performance significantly reduces REM, suggesting that comprehensive sustainability practices constrain real-activities manipulation. The environmental and social pillars show no significant individual effects. In contrast, the governance pillar is positively associated with aggregate REM but negatively associated with its underlying proxies, indicating sensitivity to REM measurement and possible substitution across earnings-management strategies. These findings demonstrate that ESG effects are multidimensional and that governance quality should be assessed beyond formal compliance. The study highlights the importance of distinguishing substantive sustainability practices from symbolic ESG adoption in strengthening corporate accountability across ASEAN markets.