This study examines the association of corporate sustainability management with earnings transparency. Based on previous studies that indicate that sustainability management activities reduce earnings management and corporate risk and increase a firm’s value, this study predicts that the firms with effective sustainability management will have a high earnings transparency. In addition, this study examines the differential effect of corporate sustainability management on earnings transparency according to whether or not a firm belongs to a chaebol. We use Environmental, Social, and Governance (ESG) ratings of the Korean Corporate Governance Service (KCGS) as a proxy for corporate sustainability management and apply the method of Cheng and Subramanyam (2008) to measure earnings transparency. The empirical results show that there is a significant positive relationship between corporate sustainability management and earnings transparency. Furthermore, the association between corporate sustainability management and earnings transparency is more negative for firms belonging to a chaebol. These results indirectly show that firms belonging to a chaebol have a lower level of information asymmetry than firms not belonging to a chaebol. This study focuses on corporate sustainability management as a determinant of earnings transparency, and is useful for examining the effect of belonging to a chaebol on the relationship between sustainability management and earnings transparency. Our results are expected to provide important implications not only for managers, but also for investors and regulators.
This study analyzed the relationship between the environmental, social, and governance (ESG) assessment results of the Korea Corporate Governance Service, which evaluates the sustainability management levels of Korean companies and the variability in the five-year cash effective tax rates, a proxy for sustainable tax strategies. Corporate sustainability management allows the continuation of businesses that consider environmental protection, social contribution, and ethical management, as well as short-term financial performance. We expect these companies to prioritize sustainable tax strategies that ensure the long-term maintenance of the tax strategy results. Using a sample of firms listed in the Korean securities market during the 2011–2017 period, we adopted a two-way clustered regression model by a firm and year and established a research model with reference to previous studies and tax strategies. We found a significant negative association between excellent ESG ratings and the variability of cash effective tax rates, as well as between the implementation of ESG assessments and the variability of cash effective tax rates. This result indicates that companies with excellent corporate sustainability management strengthen their sustainable tax strategies and that companies become more interested in sustainable tax strategies after implementing ESG assessments. This study sheds light on the relationship between corporate sustainability management and sustainable tax strategies, helping improve our understanding of the impact of corporate sustainability management on sustainable tax strategies.
This study examines the implications of sustainable management for the persistence of earnings and earnings components. This study also analyzes whether sustainable management influences investors’ assessments of earnings persistence. According to previous studies, sustainable management activities ultimately have a positive effect on corporate financial performance and corporate value by satisfying the desires of not only shareholders, but also various actors concerned with social contributions and reduced information asymmetry. In addition, the transparency of financial reporting increases as earnings management decreases due to ethical management. So this study predicts that excellent sustainable management activities will improve earnings persistence and investors use as a signal to correctly price the persistence of earnings. This research uses the ESG ratings as a proxy for sustainable management and sample size is 3,247 in Korea securities market. The empirical results show that there is a significant positive relationship between higher ESG grades and earnings and earnings components. And by the method of Mishkin (1983), investors correctly price the persistence of earnings and earnings components based upon sustainable management activities. The results in this study helps to improve our understanding of the impact of sustainable management for earnings quality and investors’ evaluation of earnings quality.
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