Corporate social responsibility, firm performance and the moderating effect of earnings management in Chinese firms

Abstract

Purpose The purpose of this paper is to examine the relationship between corporate social responsibility (CSR) and firm performance and the moderating role of earnings management on the relationship between CSR and firm performance. Design/methodology/approach The empirical study used the updated data set (3,481 unbalanced observations for period 2009–2015) from Chinese listed companies on Shenzhen and Shanghai stock exchanges. The generalized method of moments (GMM) statistical approach has been used for the analysis. The authors utilized STATA to test GMM on a sample of Chinese listed firms data over the period 2009–2015. The unbalanced sample obtained 3,481 observations from China stock market and accounting research database and CSR ratings provided by Rankins (RKS). Findings The results demonstrated that CSR has a positive and significant relationship with firm’s performance; also, earnings management has a negatively moderate relationship between CSR and firm performance. These results imply that a high value of earnings management, which results in high level of symbolic CSR, converts to low firm performance of the Chinese firms. CSR actions (only as symbolic measures) promoted by managers as a means to cover their profit management incite an adverse effect on the company’s performance. This study has highlighted the impact of two different corporate social responsibilities: substantive and symbolic (genuine CSR vs greenwashing) on firm performance. Research limitations/implications The results of this investigation will be of distinct interest to company owners who wish to ascertain the effectiveness of the sustainability decisions of directors and managers, and also to investors and public authorities to estimate the positive relationship between CSR and company’s reputation and image, and thus, the positive influence on firm performance. Originality/value Previous studies have generally focused on the relationship between CSR and firm performance. This study provides the impact of earnings management (measurement of both aspects of accrual-based earnings management and real earnings management) on this relationship. Furthermore, this study examines the state of CSR in the Chinese market and provides empirical evidence of this relationship in emerging markets.

Does Corporate Social Responsibility Affect the Financial Performance of the Manufacturing Sector? Evidence from an Emerging Economy

“…Previous studies and theoretical bases support the positive relationship between CSR and firm performance [25,[45][46][47][48][49]. Branco and Rodrigues [50] declared that accompany can develop sustainably, creating a competitive advantage through the strict implementation of CSR-based actions.…”

“…Specifically, the examination of the impact of state-owned enterprises (SOE) and non-SOEs in China listed firms explicates the influence of ownership and agency costs [58]. Nevertheless, research has determined that the long-term relationship between CSR and firm performance is connected with the long-term benefits generated by CSR operations [48,58].…”

Are Socially Responsible Companies Really Ethical? The Moderating Role of State-Owned Enterprises: Evidence from China

“…Additionally, to deal with the possibility of an endogeneity problem, we used the 2SLS regression model [16,58,106]. The main reason behind this application is that the managers assess the level of EM and CSR at the same time, and the issues related to endogeneity need to be addressed using the above-mentioned approach.…”

The role of institutional ownership in strengthening to the enterprise value on the banking issuers

“…The q value is less than one, and investment opportunities are inadequate for investors. The next formula is (Sial et al, 2018):…”

“…Formula (3) above shows the market value which is the price that occurs from the process of bargaining on the stock market (Sial et al, 2018). This value can only be determined if the company shares are sold on the stock market.…”