Beyond ESG: Do Independent Commissioners Strengthen the Fight Against Earnings Management?

Abstract

This study analyzes the effects of Environmental, Social, and Governance (ESG) Disclosure, Managerial Ownership, and Financial Distress on Earnings Management, and examines the role of Independent Commissioners as a moderating variable in energy sector companies listed on the Indonesia Stock Exchange in 2024. The study employs a quantitative approach with an explanatory research design. The data used are secondary data obtained from companies’ annual reports, sustainability reports, and financial statements. The sample consists of 198 companies selected using purposive sampling. Data analysis was conducted using multiple linear regression and Moderated Regression Analysis (MRA) with IBM SPSS Statistics version 31. The results indicate that ESG Disclosure and Managerial Ownership have a significant negative effect on Earnings Management, while Financial Distress has no significant effect. Furthermore, Independent Directors were found to strengthen the influence of ESG Disclosure and Managerial Ownership in curbing Earnings Management practices; however, they were unable to moderate the relationship between Financial Distress and Earnings Management. These findings provide empirical support for Agency Theory, which states that effective corporate governance mechanisms can reduce agency conflicts and improve the quality of financial reporting. In practical terms, companies need to improve the quality of their ESG disclosures, strengthen managerial ownership, and optimize the effectiveness of the oversight function of independent commissioners to enhance transparency and minimize earnings management practices.