An international research on the relationship between financial reporting quality and environmental social governance (ESG) performance

This study examines the effect of environmental, social, and corporate governance (ESG) performance on financial reporting quality. In the first theoretical part of the study, financial reporting concepts, financial reporting quality concepts and earnings management based models used as indicators of financial reporting quality are explained. In the second part, corporate governance, corporate social responsibility, corporate sustainability and environmental, social, and corporate governance (ESG), which are very important today, are explained theoretically within the scope of the study. The third part of this study is the research part. This part includes importance, scope, aim, literature review, hypotheses, descriptive statistics, analysis, findings, and results of the study. The analysis aim to determine the relationship between the financial reporting quality and ESG scores of firms. Within the scope of the study, there are 2009 firms from 35 countries from 2010 to 2017. Four different models are used as indicators of financial reporting quality. ESG performances were examined on five different scores, namely ESG Score, Environmental Score, Social Score, Governance Score and Combined ESG Score. The analysis were performed with 14063 firm-year and 12054 firm-year observations. As a general summary of the results obtained, ESG scores positively associated with financial reporting quality. In other words, increasing ESG scores improves financial reporting quality. Keywords: Financial reporting quality, environmental social and governance (ESG), corporate social responsibility, corporate sustainability, earnings management