This study aims to examine the effect of environmental, social and governance (ESG) reporting on the likelihood of accounting restatement through the moderating effect of national culture.
To test this study’s hypotheses, the authors applied logistic regression with panel data using the Thomson Reuters ASSET4 database on a sample of 328 European firms listed on the ESG index between 2012 and 2021. Likewise, three robustness analyses were conducted as an expansion of the study. The authors included alternative measures of the dependent and independent variables and applied the simultaneous equation model for the endogeneity test.
The results prove a significant negative relationship between ESG reporting and the likelihood of accounting restatement; companies with high ESG reporting are less likely to engage in accounting restatement practices. Moreover, the results demonstrate that some national cultural dimensions moderate the link between ESG reporting and firms’ accounting restatement.
Despite the relevance of materiality to ESG reporting, it was not examined in this study. Countries with few observations were included to avoid the limited sample size, hence an unequal distribution of observations within countries.
The results have interesting implications for potential business partners and investors. Thus, to encourage sustainable and responsible business practices, governments can strengthen regulation and oversight of accounting data production and processing.
This study is unique in examining the moderating effect of national culture on the relationship between ESG reporting and the likelihood of accounting restatement.
