Sandakelum, E.A.I.1 and Tilakasiri, K.K.2
Department of Accountancy, Faculty of Commerce and Management Studies,
University of Kelaniya, Dalugama, Sri Lanka
This study aimed to evaluate the impact of sustainability reporting practices (SRP) on the Earnings Management (E.M.) of companies that are listed on the Colombo Stock Exchange (CSE) in pre and during the Covid-19 situation under the best sustainability ratings 2021. The population under consideration in this research is the total number of companies selected for the best sustainability ratings in 2021. The study population comprised 66 companies, including financial and non-financial companies listed under the Colombo Stock exchange. The random sampling method is used for selecting the study sample. The sample comprises 45 non-financial companies in Sri Lanka that reported SRP disclosure information for six years during 2016-2021. This research used secondary data from the financial, annual, and sustainability reports issued by the companies. The independent variable is SRP, which consists of economic, environmental, and social indicators. The disclosure index of Sustainability reporting guidelines from GRI G4 and finally developed the sustainability reporting disclosure index (SRDI) use for him. The dependent variable is E.M., measured by discretionary accruals calculated using the Modified Jones Model. Descriptive statistics and panel regression analyses were used to analyse the information in the reports to recognise the impact of SPRs on E.M. Research results suggest that there is a significant negative impact of SRPs on E.M. practices in pre and during the Covid-19 period. Indeed, research evidence shows that companies with higher SRPs are less prone to advance E.M. practices. This study’s findings indicate that all stakeholders can use earnings management practices and sustainability reporting disclosures as sources of information when making decisions. The outcomes of this research show that non-financial sustainability reporting information disclosures are linked with the financial details published by the firm, specifically in earnings management. The study’s other implication is the importance of developing businesses for sustainability reporting disclosure and giving an assurance service for that purpose.
Keywords: Sustainability reporting, Earnings management, Global reporting initiatives, Modified Jones Model, Covid-19.