Earnings Management, Executive Digital Literacy, Investor Sentiment, and ESG Performance: Evidence from LQ-45 Firms in Indonesia

This study investigates earnings management in firms included in the LQ-45 index of the Indonesian capital market. The analysis focuses on executive digital literacy, investor sentiment, and Environmental, Social, and Governance (ESG) performance, alongside several firm-level financial controls. Panel data consisting of 84 firm-year observations are analyzed using a Fixed Effects Model (FEM) to account for unobserved, time-invariant firm-specific characteristics. The estimation results indicate that the regression model is jointly significant and explains a moderate proportion of the variation in earnings management. However, executive digital literacy, investor sentiment, and ESG performance do not show statistically significant associations with earnings management. By contrast, operating cash flow and leverage are negatively and significantly related to earnings management, suggesting that firms with stronger internal cash generation and greater debt-related monitoring tend to exhibit lower levels of opportunistic reporting. Profitability, firm size, and sales growth are not found to be significant determinants. Taken together, after controlling for firm-specific heterogeneity, variations in earnings management appear to be more closely associated with firms’ financial conditions than with non-financial characteristics within the sampled firms.