Sustainability Reporting Quality, Ethical Leadership, and Earnings Management: Evidence from an Emerging Economy

This study analyzes the relationship between sustainability reporting quality (SRQ) and earnings management (EM) in an emerging economy and investigates the moderating role of ethical leadership. Analyzing 531 firm-year observations from mandatory reports (2022-2024), SRQ is measured via a 51-indicator index, while EM is proxied by the Modified Jones and Kothari models. Using firm fixed effects and 2SLS to address endogeneity, the results show a positive, simultaneous correlation between SRQ and EM, supporting the view that greenwashing disclosures mask short-term manipulation. Conversely, lagged specifications reveal a negative correlation, suggesting that consistent quality fosters long-term discipline. Additionally, ethical leadership acts as an internal control mechanism, reversing the positive association and inhibiting the symbolic exploitation of sustainability. By shifting focus from disclosure quantity to quality and employing an objective financial measure, this research provides vital insights for regulators and investors regarding reporting integrity and ethical conduct in emerging markets.