The Impact of Corporate Charitable Contributions on Audit Hours

Abstract

Corporate social responsibility (CSR) is a pertinent strategy to enhance consumer perception of product quality and a company’s reputation. A growing body of literature has investigated whether corporate charitable contributions play a similar role to that of corporate social responsibility. Controversy still remains over the cause and effect of corporate charitable contributions. This study’s objective was to examine whether auditors apply more effort when reviewing firms with a higher level of corporate charitable contributions. For example, if auditors perceive corporate charitable contributions as the opportunistic behavior of managers, then the auditors thoroughly review and prepare financial statements. However, if auditors assess corporate charitable contributions as one of a firm’s ethical responsibilities, then they are not likely to put in more effort when reviewing such firms. This paper aims to examine how capital market participants assess a firm’s charitable contributions. Using an extensive set of data for Korea from 2008 to 2015, we conducted a battery of robustness analyses to address various endogeneity issues using the abnormal audit hour model, propensity score matching method, and 2SLS regression. We found that corporate charitable contributions were positively associated with audit hours. It indicated that auditors applied more effort when they reviewed firms with corporate charitable contributions. The results suggest that auditors in Korea do not perceive corporate charitable contributions as a CSR activity but rather as an indication of the opportunistic behavior of managers.

How does corporate social and environmental responsibility contribute to investment efficiency and performance? Evidence from the financial sector of China

“…To further robust test the results and control for the issue of endogeneity in this research study, we perform the two-staged least square method (2SLS). Based on the previous studies of Al Mamun et al (2020), Chun et al (2019), andShahab et al (2020), this study uses the mean values of province CSR as an instrumental variable to perform the 2SLS test for endogeneity, and no prior research study suggests that CSR of firms in the same province will affect the investment efficiency and performance of firms there we can say that the instrument variable is exogenous. Table 7 shows the results for 2SLS, model (1) shows the first stage results for CSR and the instrumental variable, and Models (2) and (3) show the second stage results for CSR, investment efficiency (Inveff), and financial performance (ROA).…”