Sustainability and Earnings Quality: The Role of Management Control Systems

This study explores the relationship between organisational initiatives on social sustainability embedded within firms’ management control systems (MCSs) and their earnings quality. Using Simons’ (1994) control levers framework, the analysis examines the impact of these initiatives on corporate disclosure behaviour via earnings quality, measured through accruals-based earnings management. The longitudinal dataset includes 7,182 observations from US-listed firms between 2007 and 2021. The findings provide robust evidence of the positive implications of integrating social control mechanisms (SCMs) within MCSs, enhancing corporate disclosure behaviour. Furthermore, corporate governance (CG) is identified as a moderating element that facilitates the development of a culture of accountability, transparency, and ethical conduct, thereby reinforcing the relationship between SCMs and earnings quality. Overall, this study significantly contributes by emphasising the crucial impact of SCMs on corporate disclosure behaviour. The insights gained hold practical implications for organisations seeking to enhance social sustainability practices and cultivate stakeholder trust.