Corporate social responsibility and earnings management in the EU: a panel data analysis approach

Abstract

Purpose Over the past decades, corporate social responsibility (CSR) has been considered as a significant corporate strategy and also has been documented as a main information dissemination mechanism of corporations to shareholders, creditors and other external stakeholders. This fact makes the CSR activities and CSR performance interconnected with the quality of firms’ financial reporting. The purpose of this paper is to study the impact of CSR performance on the earnings management (EM) behaviour using a sample from 24 European Union (EU) countries summing up to 121,154 firm-year observations over the period 2003–2018. Design/methodology/approach The study uses a multi-country data set with various dimensions of CSR performance including indexes regarding workforce, community relations, product responsibility and human rights protection. The empirical analysis is conducted with panel data regressions. Findings Evidence supports the negative association between CSR and EM indicating that high CSR performing firms are associated with less income smoothing and discretionary accruals, thus with higher financial reporting quality. Practical implications Regulatory agencies in the EU could use the findings of the study for the improvement of the accounting framework via enhancing the use and publications of social and environmental responsibility information and reports. Social implications Also, the current paper could be of interest not only to academic researchers but also to potential and existing investors in European corporations. The negative association between CSR performance and EM could be used by investors in assessing the risk of firms and the quality and reliability of their financial information. Originality/value This is the first study within the EU, which considers the multi-facet characteristics of CSR on the quality of accounting earnings and offers useful policy implications for regulators and investors.

Systematic Review of Socio-Emotional Values Within Organizations

“…Recalling the beginning of this study, the theory of separation brings an organizational attitude that spoils the organization from their social function, creating an extremist world consideration, in which an organization cannot consider the possibility of earning money by considering the common good, neglecting environmental sensitivity, labor and political rights, urban sustainable development, and creating wars and exploitation. Trying to overwhelm an ideological approach, the integration of profit and social function must involve socio-emotional elements among organizations introducing social accountability ( Hadden, 2012 ; Tang and Luo, 2016 ; Bhatia et al, 2020 ; Dimitropoulos, 2020 ), which aims to obtain a balanced0 vision between these two dimensions. Emotions are fundamental to moving managers to a major social sensitivity and an ethical approach to business management ( Rok, 2009 ; Fairchild, 2010 ; Capell and Gabell-Shemueli, 2013 ; Caldwell and Hayes, 2016 ; Asgary and Lawrence, 2020 ), better communication ( Dibben, 2004 ; Swift and Hwang, 2013 ; Lim et al, 2018 ), and improved organizational performance ( Gabel-Shemueli and Dolan, 2011 ; Wei and Li, 2011 ; Bettis-Outland and Guillory, 2018 ), preventing conflict ( Flanagan and Henry, 1994 ; Leggat and Balding, 2013 ; Gokturk et al, 2017 ; Herkes et al, 2019 ) and suffering ( Micael et al, 2008 ; Richardsson et al, 2008 ; Skaalvik and Skaalvik, 2011 ; Martinèz et al, 2013 ; Rooney and Grant, 2013 ; Shongwe and Cilliers, 2020 ).…”

“…There is a dualistic conception: An organization with a “pure” entrepreneurial philosophy, founded on profit and an individualistic view based on a zero-sum-game, where the profits of an organization are more important than the richness and wellness of society; in contrast, there is an organization that adopts a strategy strictly oriented to improving society, in terms of health, security, quality of life, or other aspects, without consideration for profit, resulting in a poor or sometimes negative economic balance ( Nikodemska-Wolowik, 2008 ; Kirzner, 2019 ; Mensik, 2019 ). The social accounting for the stakeholder model is a paradigm, where even an entrepreneurial organization that is usually focused on satisfying only the interests of its founders and shareholders must also consider the needs of the society and the community in which it operates ( Hadden, 2012 ; Tang and Luo, 2016 ; Bhatia et al, 2020 ; Dimitropoulos, 2020 ). While a traditional entrepreneurial approach involves capital investment by one person, two or more associates, or a total or prevailing state capital, there has recently appeared a new form of capital contribution, crowdfunding ( Pavlidou et al, 2020 ).…”

Stock Liquidity and Capital Structure: Evidence from NSE Listed Top 100 Non-Finance Indian Firms

“…To examine the aforementioned econometric model, the research utilizes a static panel data technique (balanced), as the sample comprises data across firms and overtime. This technique, as argued, allows for individual heterogeneity control, alleviates the multicollinearity issue, amplifies the degree of freedom and data variability, and yields more efficient and unbiased estimates (Dimitropoulos, 2020;Khaki and Akin, 2020).…”

Does Corporate Sustainable Management Reduce Audit Report Lag?

“…The direction of the relationship between CSM and audit report lag can be inferred from the link with accounting quality. Under the stewardship and stakeholder theories, earnings management decreases as CSM activities are actively performed [26][27][28][29]. On the other hand, under the agency theory, earnings management increases as CSM activities are actively performed [30][31][32].…”