Sustainability Management and Firm Value: The Moderating Role of Earnings Management in Southeast Asian Markets

Abstract

Corporate sustainability has become an increasingly important determinant of corporate value as firms face growing expectations from investors, employees, customers, regulators, communities, and other stakeholders. While sustainability management can strengthen stakeholder relationships, enhance organizational legitimacy, reduce non-financial risks, and support long-term value creation, the valuation implications of sustainability may depend on the credibility of firms’ financial reporting. This study examines the relationship between sustainability management and firm value and investigates whether earnings management alters this relationship. Grounded primarily in Stakeholder Theory, the study conceptualizes sustainability as a multidimensional corporate practice encompassing environmental, social, economic, and governance responsibilities. The analysis uses 3,134 firm-year observations for publicly listed non-financial firms in Indonesia, Malaysia, Singapore, Thailand, Vietnam, and the Philippines over the period 2015–2025. Firm value is measured using forward Tobin’s Q at one- and two-year horizons, while sustainability management is captured through a 22-item disclosure index covering environmental, social, economic, and governance dimensions. The empirical analysis employs firm and year fixed-effects models and distinguishes between aggregate earnings management, accrual-based earnings management, and real activities-based earnings management. The results show a positive and statistically significant association between sustainability management and firm value across the estimated specifications. Aggregate earnings management does not significantly moderate this relationship. When earnings management is separated into its underlying forms, accrual-based earnings management has a negative and statistically significant interaction with sustainability management, indicating that greater accrual-based earnings management is associated with a weaker sustainability–firm value relationship. In contrast, real activities-based earnings management does not significantly alter the relationship. Cross-country and industry analyses further indicate substantial heterogeneity in the estimated associations. The findings emphasize that the valuation implications of sustainability are connected not only to the extent of corporate sustainability practices but also to the credibility of accompanying financial information. The study contributes to the sustainability and corporate reporting literature by distinguishing between alternative earnings management mechanisms within a multi-country Southeast Asian setting.