Financial Reporting Quality of ESG Firms Listed in China

The quality of financial reporting shows how informative the accounting numbers are for decision-making. Because business outlook can influence financial reporting quality, this study examined predictable, moderately predictable and unpredictable business outlooks. The study randomly selected 100 firms from the 2021 China ESG Top 500 Outstanding Enterprises published by the Sina Finance ESG Rating Centre. It investigated determinants (financial health, governance and earnings management), controlling for the influence of known variables (firm age and firm-specific risk) on financial reporting quality measured as accruals quality and earnings smoothness. Ordinary robust least square regression was conducted. Financial health had an accrual quality, board size, China, earnings management, ESG, earnings smoothness, female directors, financial reporting quality, firm-specific risk, governance, financial distress, financial health, firm age, independent directors, predictability, persistent negative influence, but governance variables and earnings management did not affect financial reporting quality. The firm-specific risk was positively affected, but firm age did not influence financial reporting quality. Changes in business outlook had no impact on the determinants’ effect on financial reporting quality. The study found that ESG firms did not engage in earnings management and aggressively managed earnings, pointing to ethical behaviour. This is the first study to contribute to understanding the financial reporting quality of ESG firms listed in China