Date of Award

11-24-2025

Thesis Type

Masters

Document Type

Dissertation

Divisions

Faculty of Business and Economics

Department

Department of Accounting

Institution

Universiti Malaya

Abstract

This paper examines the relationship between Environmental, Social, and Governance (ESG) performance and earnings management (EM) in Chinese A-share pharmaceutical manufacturing listed companies in the Shanghai and Shenzhen stock markets from year 2018 to 2022. It specifically focuses on analyzing the moderating role of internal control quality (ICQ) in this relationship. The research data are sourced from multiple authoritative Chinese databases: ESG data are obtained from the Wind Database, data related to earnings management calculations are sourced from the China Stock Market & Accounting Research Database (CSMAR), and internal control quality data are obtained from the Internal Control and Risk Management Database. During the sample screening process, companies under Special Treatment (ST) and *Special Treatment (*ST), and those with missing data were excluded, resulting in a final sample of 199 enterprises. After descriptive statistics and regression analysis, 829 valid observations were obtained. The empirical results indicate a significant negative correlation between the overall ESG performance of Chinese pharmaceutical companies and earnings management (EM), meaning that companies with better ESG performance exhibit lower levels of accrual-based earnings management. Further analysis of the sub-dimensions reveals that the environment (ENV), social (SOC), and governance (GOV) dimensions all have a significant negative effect on EM, but their influence varies. Among them, the GOV dimension, through mechanisms such as optimizing board structure and enhancing audit supervision, demonstrates the most prominent negative effect on EM. The ENV dimension, driven by stringent environmental regulations in the pharmaceutical industry, also shows a significantly stronger negative effect than the average across all industries. More importantly, this study reveals the key moderating role of internal control quality iv(ICQ). Specifically, ICQ significantly amplified the negative effect of ESG on earnings management. This means that ESG practices have a more significant effect on improving the quality of financial reporting in companies with sound internal control systems. While existing literature often focuses on the direct relationship between ESG and EM without fully considering the moderating effect of internal control quality, this study fills this gap. The research conclusions provide important implications for pharmaceutical corporate practices: policymakers should tailor regulatory mechanisms that integrate ESG ESG and internal control for the pharmaceutical industry's characteristics, guiding companies to improve earnings quality through substantive governance.

Initial

Dissertation (M.A.) – Faculty of Business and Economics, Universiti Malaya, 2025.

Additional Information

khm

Creative Commons License

Creative Commons Attribution-NonCommercial 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

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