How does earnings management affect corporate green innovation? Evidence from China

Abstract

This article examines whether and how earnings management affects corporate green innovation in the context of China’s green transformation and the wider international drive for sustainability. The results reveal a pronounced inverse association between earnings management and green innovation. We also find that greater earnings management influences corporate green innovation by tightening external finance constraints and exacerbating managerial myopia. The negative effect is especially pronounced among firms operating in weaker external information environments, in regions with weaker environmental regulation, and in technology-intensive or heavily polluting industries. Moreover, earnings management negatively affects firms’ ESG performance by diminishing their green innovation capabilities, providing essential insights into how to promote corporate green transformation and further sustainable development goals.