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1 Introduction
Societal concern tends to be recognised as a significant corporate responsiveness to communicate between organisations and the society with regard to social responsibility and sustainability. According to [16] Gray et al. (1995), corporate social and environmental disclosure might be treated as a legitimate and social contribution made by the organization. However, due to imperfect auditing in the real world of economy, managers have incentives to take discretionary actions over reported income to maximise their own benefit. [20] Healy and Wahlen (1999, p. 366) argue that earnings management (EM) exists when managers either "mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting numbers".
The purpose of this paper is to investigate the association between corporate environmental disclosure (CED) and EM. In particular, we are interested in answering the following RQs :
RQ1. What is the relationship between CED and EM?
RQ2. To what extent does corporate governance (CG) affect the relationship between CED and EM?
Prior research has concentrated either on the relationship between corporate social responsibility (CSR) and corporate financial performance (CFP), indicating that financial and economic performance of an entity has a positive relation with its social responsibility ([42] Ullmann, 1985; [30] McGuire et al. , 1988; [40] Salama, 2005); or on the association between EM and CG, predicting that the reliability and quality of accounting earnings will be enhanced when managers' opportunistic EM behaviour is monitored by CG mechanisms ([44] Wild, 1996; [12] Dechow et al. , 1996; [27] Klein, 2002). In other words, the research has failed to explore the direct link between CSR and EM and the impact of CG on the association between the two variables. [7] Chih et al. (2008) and [39] Prior et al. (2008) are considered the key articles that explore the relation between CSR and EM, based on international data.
Since most of the empirical research was limited to the US setting, we strongly believe that this paper provides a novel contribution to the existing literature as the authors are the first to examine this issue in the UK. The UK government has recently claimed that environmental reporting is deemed to be crucial in corporate reporting and companies must now report essential...