Do Audit Committees and Institutional Ownership Constrain Earnings Management in Sustainability Reporting?

Abstract

The increasing adoption of sustainability reporting has heightened the need for credible and transparent corporate disclosures. However, concerns remain regarding the potential use of earnings management to influence both financial performance and the reliability of sustainability information. This study aims to examine whether audit committees and institutional ownership constrain earnings management in the context of sustainability reporting. A quantitative explanatory research design was employed using panel data from non-financial companies listed on the Indonesia Stock Exchange (IDX) during the 2021–2025 period. Secondary data were obtained from annual reports, sustainability reports, and corporate governance disclosures. Earnings management was measured using discretionary accruals, while audit committee characteristics and institutional ownership served as the primary independent variables. Panel data regression analysis was applied to evaluate the relationships among the variables after selecting the most appropriate estimation model. The findings indicate that effective audit committees and higher institutional ownership significantly reduce earnings management, suggesting that stronger corporate governance improves the credibility of sustainability reporting. These results reinforce the role of governance mechanisms in mitigating agency problems and enhancing reporting transparency. The study contributes to the growing literature on corporate governance and sustainability reporting while providing practical implications for regulators, investors, and corporate managers seeking to strengthen governance practices and improve the quality and reliability of sustainability disclosures.