Corporate Social Responsibility, Earnings Management, and Firm Performance: Evidence from Panel VAR Estimation

Anderson, Mark C.; Hyun, Soonchul; Warsame, Hussein A.

doi:10.2139/ssrn.2379826

Cited by 9 publications

(14 citation statements)

References 68 publications

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“…In Model 2, results show that earnings management is significantly (at the 0.01 level) and negatively associated (–2.801) with the market performance, thus our H2 is confirmed . This finding is consistent with those found by Watts and Zimmerman, 1990; Stiglitz and Edlin, 1992; Graham et al , 2005; Jaggi et al , 2009; Hao and Yao, 2010; Chu and Song, 2012 and Anderson et al , 2013, who recorded that the firm performance tends to drop whenever managers undertake to manage earnings. Indeed, the managers run earnings for their own private benefits rather than for the benefits of the shareholders (Kim et al , 2016; Bouaziz and Jarboui, 2019).…”

Section: Resultssupporting

confidence: 92%

“…Indeed, the managers run earnings for their own private benefits rather than for the benefits of the shareholders (Kim et al , 2016; Bouaziz and Jarboui, 2019). Anderson et al (2013) suggest that if earnings management is mainly opportunistic, there will be a negative relationship between the AD and firm performance measured by Q-TOBIN.…”

Section: Resultsmentioning

confidence: 99%

“…Companies use flexibility and freedom in accounting rules to manage their reported earnings for different objectives and in several contexts. Some previous researchers found that managers’ accruals choices are opportunistic, resulting in low-quality reported earnings (Watts and Zimmerman, 1990; Stiglitz and Edlin, 1992; Graham et al , 2005; Jaggi et al , 2009; Hao and Yao, 2010; Chu and Song, 2012; Anderson et al , 2013). On the other hand, other researchers assert that managers exercise their discretion to improve the informational value of accounting numbers (Watts and Zimmerman, 1990; Healy and Palepu, 1993).…”

Section: Theoretical Background and Hypotheses Developmentmentioning

confidence: 99%

“…On the other hand, other researchers assert that managers exercise their discretion to improve the informational value of accounting numbers (Watts and Zimmerman, 1990; Healy and Palepu, 1993). In fact, they argue that earnings management may be beneficial because it improves the information value of earnings by conveying private information to the market (Cohen et al , 2008; Anderson et al , 2013).…”

Section: Theoretical Background and Hypotheses Developmentmentioning

confidence: 99%

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Shareholder activism, earnings management and Market performance consequences: French case

Bouaziz

Fakhfakh

Jarboui

2020

IJLMA

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Purpose The purpose of this study is to investigate the impact of the relationship between shareholder activism and earnings management on the market performance of French companies. Design/methodology/approach This study used 385 firm-year observations drawn from a sample of French companies belonging to the SBF 120 index from 2008 to 2012. Data was collected from annual reports of sample companies. To measure earnings management, this study used the model of Raman and Shahrur (2008). The relationship between shareholder activism, earnings management and market performance using the panel data regression model was empirically examined. Findings The results prove that shareholder activism, as indicated by shareholder proposals, has no impact on market performance. However, the existence of shareholder activism affects the market performance positively. In fact, a minimum of proposals proves that shareholder activism plays an appropriate and effective role in creating value. Thus, several activists would resort to “a private activism” which could be the best and the least expensive form. This form of activism is called “behind the scenes.” Findings also show that earnings management has a negative impact on market performance. As a matter of fact, these findings allow to conclude that the firm performance decreases whenever managers undertake to earnings management. Also, earnings management behavior is mainly opportunistic. Finally, the relationship between shareholder activism and earnings management has no impact on market performance. This result reveals that shareholder activism proves to be an ineffective mechanism that does not alter the accounting choices, particularly in relation to earnings management. This result shows the inability of active shareholders to define and implement strategies across their proposals, namely, “the lack of monitoring competence.” Research limitations/implications It is important in future research to evaluate the impact of behind the scenes interventions on corporate governance. Also, this paper gives a larger dimension to the effect of shareholder activism on the market performance in the specific context of earnings management, thus justifying the need to expand this study using other methodologies to deepen and better understand this relationship in this context. Practical implications The paper's evidence contributes to an understanding of corporate governance. The finding of this study will help in monitoring and controlling fraudulent earnings management practices that effect on market performance. Further, this study is important to investors, academics and policymakers, as it demonstrates that governance reforms that encourage firms to adopt better governance practices that reduce the likelihood of earnings management. Originality/value To the best of the author’s knowledge, this paper pioneers in focusing on the impact of the shareholder activism and earnings management on the market performance because previous studies put more emphasis on pair-wise relations (Shareholder activism-earnings management, earnings management-market performance and shareholder activism-market performance). This study provides empirical evidence on the effectiveness of the relationship between shareholder activism and earnings management on market performance.

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Section: Resultssupporting

confidence: 92%

Section: Resultsmentioning

confidence: 99%

Section: Theoretical Background and Hypotheses Developmentmentioning

confidence: 99%

Section: Theoretical Background and Hypotheses Developmentmentioning

confidence: 99%

See 2 more Smart Citations

Shareholder activism, earnings management and Market performance consequences: French case

Bouaziz

Fakhfakh

Jarboui

2020

IJLMA

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“…Endorsing positive/negative synergy theory as a relevant theoretical lens, Nakamura (2015) found that environmental and social performance has a bidirectional relationship with firm performance. Similarly, recent studies such as (Anderson et al, 2014; Chollet & Sandwidi, 2018; Kang et al, 2016) also found a bidirectional association between corporate social conduct and firm performance. However, Q.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 59%

Do ESG Endeavors Assist Firms in Achieving Superior Financial Performance? A Case of 100 Best Corporate Citizens

Qureshi

Akbar

et al. 2021

Sage Open

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Increasing interest in sustainability performance (environmental, social, and governance pillar performance [ESGP]) and corporate financial performance (CFP) is noteworthy. However, we do not find any all-inclusive study that employs both individual components of environmental, social, and governance pillars (ESG) as well as the cumulative ESG score on both the accounting and market performance of firms. Furthermore, we do not find any study that puts forth “best practices” in the ESGP-CFP nexus. Therefore, our study intends to provide additional empirical evidence in this debate by including all three pillars of ESG as well as the overall ESG score by employing a unique sample of “100 best corporate citizens” in the United States declared by 3BL Media during 2009 to 2018. For this purpose, we employ panel vector auto regression (PVAR) that allows us to overcome the methodological challenges faced by some earlier empirical studies. The core findings are: (a) for market-based financial performance (market-to-book ratio [MTB] and Tobin’s Q), our results only confirm ESGP–CFP relationship and suggest that sustained higher commitment to the environmental pillar, consistent socially responsible conduct, and rationalized governance mechanism of the sampled firms are perceived value additive by the market players. (b) For accounting-based financial performance (return on equity [ROE] and return on assets [ROA]), we find a mix of ESGP–CFP and CFP–ESGP relationship for ROE only. Furthermore, factor error variance decomposition (FEVD) analysis reveals that environmental, social, and overall ESG performances of the sampled firms are quite good predictors of future CFP in the market. These findings assert that actively pursuing ESG endeavors can assist firms in achieving superior financial performance.

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ESG reputational risk and market valuation: Evidence from the European banking industry

Mandas,

Lahmar,

Piras

et al. 2024

Research in International Business and Finance

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Corporate Social Responsibility, Earnings Management, and Firm Performance: Evidence from Panel VAR Estimation

Cited by 9 publications

References 68 publications

Shareholder activism, earnings management and Market performance consequences: French case

Shareholder activism, earnings management and Market performance consequences: French case

Do ESG Endeavors Assist Firms in Achieving Superior Financial Performance? A Case of 100 Best Corporate Citizens

ESG reputational risk and market valuation: Evidence from the European banking industry

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