Evaluating The Influence Of Environmental, Social, And Governance Factors On Earnings Quality: A Panel Study Of Emerging Market

Abstract

This study examines the impact of Environmental, Social, and Governance (ESG) factors on Earnings Quality (EQ) among non-financial firms listed on the Pakistan Stock Exchange (PSX) from 2015 to 2024. Using panel data analysis, the Fixed Effects Model was identified as the most suitable estimation method based on the Hausman test results. The findings reveal that ESG factors significantly improve earnings quality, with governance having the strongest positive effect. Additionally, firm size and sales positively influence EQ, while financial leverage negatively impacts it. The model explains 40.1% of the variation in EQ (R² = 0.401, F = 14.454, p = 0.000), confirming its robustness. The study recommends enhancing ESG practices, optimizing financial leverage, driving revenue growth, and strengthening regulatory frameworks to improve financial transparency and corporate sustainability. Future research should expand the scope by analyzing other markets, industries, and long-term ESG effects. The findings highlight the critical role of strong ESG frameworks in promoting financial stability, investor confidence, and corporate growth.

Keywords: ESG Factors, Environment, Social, Governance, Earnings Quality (EQ), , Stakeholders Theory, Fixed Effect Model