Legitimacy Strategies: SDG Disclosure, Earnings Management, and Accounting Changes in Indonesian Banking

This study investigates the relationship between Sustainable Development Goals (SDGs) disclosure and earnings management in the Indonesian banking sector. The research addresses whether SDG disclosure reflects a symbolic or substantive legitimacy strategy by examining its association with earnings management as a reflection of opportunistic accounting behavior. The SDG disclosure index is constructed using content analysis of GRI-based sustainability reports, and earnings management is measured through the loan loss provisions (LLP) model. The research sample consists of listed Indonesian banks for the 2016–2023 period that publish GRI-based sustainability reports, resulting in a final sample of 157 firm-year observations. Regression analysis with robust standard errors was employed to test the hypotheses and explore the moderating role of PSAK 71 implementation in the relationship. The findings show that SDG disclosure is positively associated with earnings management practices, demonstrating a symbolic strategy. This positive association became more apparent in the PSAK 71 implementation, which implies enhanced managerial discretion. These findings are consistent both for overall SDG disclosure and across each SDG pillar, as well as testing with different model specifications. These findings suggest that sustainability disclosure may be used as a channel for opportunistic behavior, particularly in contexts where accounting changes expand the scope of managerial discretion.