Corporate Social Responsibility Disclosures and Earnings Quality: Evidence from Indonesia

Abstract

This article investigates the impact of corporate social responsibility (CSR) disclosures on earnings quality, as measured by real earnings management (REM). In particular, this study investigates whether CSR reporting are situation-dependent, i.e., if the managements are required to act responsibly to restrain earnings management, hence publish a higher quality of earnings information to shareholders. This study employs 156 listed companies in manufacturing industry in 2018 and 2019 as the sample. Results from the multiple regressions analysis indicate that CSR disclosures has a positive association with earnings quality. The results imply that companies who report more CSR activities in their annual report tend to avoid income-decreasing discretionary accruals activities. This finding suggests that managers who are incentivized to disclose more CSR activities are concerned to reduce information asymmetry which therefore will also be less likely to manipulate earnings. The conclusions of the study have practical consequences for some parties, including regulators, investors, and business associates. From an ethical standpoint, manufacturing firms in Indonesia with more social responsibility provide more reliable financial information.