Do ESG ratings affect financial reporting quality? The role of media coverage

This study examined the impact of Environmental, Social, and Governance (ESG) on financial reporting quality (FRQ) in Korean listed firms, with a particular focus on the moderating role of media coverage. As proxies for FRQ, we employed accrual quality (AQ), discretionary working capital accruals (DisWCA), and discretionary total accruals (DisTA). Our empirical results show that firms with higher ESG performance were likely to show higher FRQ. More importantly, we find that media coverage lessened the positive impact of ESG on FRQ. All of these results were consistent when using individual performances of E (environment), S (social responsibility), and G (governance). These findings imply that ESG ratings in Korea played a significant role in improving financial reporting quality (FRQ), and furthermore, the positive effect of ESG on FRQ diminished as firms attracted more media attention.