No abstract

Prior research on the impact of CSR on EM has used exclusively CSR scores provided by CSR score indices (e.g. SiRi ranking index; KLD ranking index; FTSE4Good Global). Already existing indices criticized for not provide enough information about their methodologies (e.g., Kostyuk et al. 2013; Mitchell et al. 2004) and not being fully grounded in the theoretical development of CSR (e.g., Gond and Crane 2010; Mattingly and Berman 2006; Rowley and Berman 2000). The manual measurement employed in this study for CSR (disclosure index/content analysis) is considered to provide a more detailed and precise measure (Haniffa and Cooke 2005; Hassan and Harahap 2010). To the best of our knowledge, such manual measures have not been employed in joint studies of CSR and EM. Second, the majority of studies in this area are conducted in the context of US (e.g. Grougiou et al. 2014; Kim et al. 2012; Yip et al. 2011). Although the UK and the US share some common features, there are differences in many ways that could affect the inferences of such research (Toms and Wright 2005). For example, US companies are required to disclose more detailed information about corporate social activities and corporate governance than are UK firms (Lennox 2003). Another area of divergence is the notion of EM practice. In this regard, (Brown and Higgins 2001) indicate that the extent to which US managers manage earnings is significantly higher than by their counterparts in the UK. For these considerations, the present study has a strong incentive to shed more light on the potential impact of CSR on EM in the context of the UK.

The aim of this study is to investigate whether and how Serbian companies manage earnings to avoid losses and to avoid earnings decreases. The empirical evidence found in this study shows that there is a discontinuity in the distribution of reported earnings around the zero earnings benchmark suggesting that Serbian companies engage in earnings management to avoid reporting losses.  Furthermore, this continuity disappears when we subtracted discretionary accruals from reported earnings indicating that Serbian companies use discretionary accruals as a tool for earnings management. However, the distribution of earnings does not provide evidence that Serbian companies manage earnings to avoid earnings decreases. These results are robust to alternative methods of scaling earnings and various ways of estimating discretionary accruals.