MODERATING EFFECT OF FINANCIAL PERFORMANCE ON THE RELATIONSHIP BETWEEN ESG DISCLOSURE AND EARNINGS MANAGEMENT: EVIDENCE FROM THE INDUSTRIAL GOODS SECTOR OF THE NGX

Abstract

This study investigates the influence of Environmental, Social, and Governance (ESG) disclosure on earnings management in the industrial goods sector of the Nigerian Exchange (NGX), with Return on Assets (ROA) serving as a moderating variable. Drawing on agency and stakeholder theories, the study applies the Kothari model (2005) to measure accrual- based earnings management. A balanced panel of 13 firms from 2012 to 2023 is analysed using three regression models, culminating in a moderated ordinary least squares (OLS) model. Findings reveal that social (SOCI), environmental (ENVI), and governance (GOVI) disclosures significantly influence earnings management. Specifically, ENVI and GOVI negatively affect earnings manipulation, supporting the view that transparent disclosures deter opportunistic behaviour. While ROA alone shows no significant direct effect, the interaction between ESG components and ROA suggests that firm performance has a conditional influence, particularly in the ENVI and SOCI dimensions. The joint significance of the interaction terms further validates the moderating role of ROA. The study contributes to emerging market literature by reinforcing the importance of non-financial disclosures and performance interplay in curbing earnings management. It recommends policy emphasis on ESG compliance and performance-linked monitoring to strengthen financial reporting integrity and investor confidence in the industrial goods sector.