Earnings Manipulation Undermines Sustainability Efforts, Finds New Study

Strategic Insights -

A new study conducted by researchers at Cyprus International University has found that many companies engage in earnings manipulation that obscures their actual financial condition and sustainability efforts. This practice erodes stakeholder trust and undermines the credibility of financial reports. The study, which examined 248 companies listed on the London Stock Exchange between 2002 and 2024, found that earnings management has a significant negative impact on sustainability performance.

The research also found that the adoption of International Financial Reporting Standards (IFRS) has a positive and significant influence on sustainability outcomes. Additionally, institutional ownership and board independence significantly moderate the adverse effects of earnings management, leading to improved sustainability performance.

Key Takeaways:

  • The study found that earnings management, as measured by discretionary accruals, has a significant negative impact on sustainability performance.
  • The adoption of IFRS has a positive and significant influence on sustainability outcomes.
  • Institutional ownership and board independence significantly moderate the adverse effects of earnings management, leading to improved sustainability performance.
  • The study suggests that managers should enhance the clarity and accountability of financial reporting by implementing robust internal systems aligned with IFRS, conducting regular compliance audits, and training finance staff on current disclosure standards.
  • The research was based on a sample of 248 companies listed on the London Stock Exchange between 2002 and 2024.
  • The study used purposive sampling and sourced data from Thomson Reuters Eikon DataStream.
  • The researchers employed advanced estimation techniques, specifically the Augmented Mean Group (AMG) and fixed effects models with Driscoll-Kraay standard errors, to address cross-sectional dependence and slope heterogeneity.

Statistics:

  • 248 companies were included in the study sample.
  • The study examined data from 2002 to 2024.
  • The adoption of IFRS resulted in a significant improvement in sustainability performance.
  • Institutional ownership and board independence had a significant moderating effect on the negative impact of earnings management on sustainability performance.
  • Discretionary accruals were used to measure earnings management.

Sources:

  • Earnings Management and IFRS Adoption Influence On Corporate Sustainability Performance: the Moderating Roles of Institutional Ownership and Board Independence. Sustainability, 2025;17(17):7981.
  • Cyprus International University, Faculty of Economics and Administrative Sciences, Dept. of Accounting and Finance.
  • Abdelnaser M. Mohamed Amer.
  • Asil Azimli.
  • Muri Wole Adedokun.
  • NewsRx. New Sustainability Research Study Findings Have Been Reported from Cyprus International University (Earnings Management and IFRS Adoption Influence On Corporate Sustainability Performance: the Moderating Roles of Institutional Ownership and ...). Ecology, Environment & Conservation. October 17, 2025; p 529.