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A quantitative analysis of the impact of sustainability ratings on earnings management in UK-listed companies
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Xiaoxi Сhen 
, Saira Kharuddin , Jalila Johari
This work is licensed under a Creative Commons Attribution 4.0 International License.
Abstract
This study examines the relationship between environmental, social and governance (ESG) risk ratings and earnings management (EM) in 450 United Kingdom (UK) listed companies in 2024, taking firm size as a moderator. Based on the cross-sectional regression analysis and discretionary estimated accruals via the modified Jones model, the results show a statistically weak relationship between ESG ratings and EM. Contrary to a significant part of the previous literature that records an inverse relationship between ESG performance and earnings manipulation, the findings indicate that ESG ratings in the UK do not translate into earnings quality. Moreover, firm size does not have a direct influence on the EM; neither does it moderate the relationship between ESG and EM. The findings are relevant to the sustainability literature as they indicate the complexity of ESG performance and earnings quality, suggesting that ESG ratings are limited in terms of predicting financial reporting integrity in developed regulatory contexts.
Keywords: ESG Risk Ratings, Earnings Management, Firm Size, Moderating Role
Authors’ individual contribution: Conceptualization — X.C.; Methodology — S.K.; Formal Analysis — S.K.; Investigation — X.C.; Resources — X.C. and J.J.; Data Curation — S.K.; Writing — X.C. and J.J.; Supervision — J.J.; Funding Acquisition — J.J.
Declaration of conflicting interests: The Authors declare that there is no conflict of interest.
JEL Classification: M14, G34, M41
Received: 11.07.2025
Revised: 14.02.2026; 27.02.2026
Accepted: 20.03.2026
Published online: 24.03.2026
How to cite this paper: Chen, X., Kharuddin, S., & Johari, J. (2026). A quantitative analysis of the impact of sustainability ratings on earnings management in UK-listed companies. Corporate Governance and Sustainability Review, 10(2), 123–133. https://doi.org/10.22495/cgsrv10i2p11
