B Corporation Certification: A Further Exploration into the Impact of Corporate Social Responsibility on Earnings Management

<p><strong>ABSTRACT This thesis comprehensively investigates the relationship between default risk (DR) and earnings management (EM) by addressing inconsistencies in prior research regarding the level and direction of EM in response to varying levels of DR. The thesis extends beyond severe financial distress to include firms with low and medium levels of distress. It examines the non-monotonic relationship between DR and EM, considering accrual earnings management (AEM), real earnings management (REM), and total earnings management (TEM). The thesis also examines the impact of DR on the relative use of REM versus AEM. The moderating effect of the global financial crisis (GFC) on the relationship between DR and EM is also explored.</strong></p><p>Using a sample of 29,228 firm-year observations from 4,514 US-listed firms during 2001-2019, the study employs both the traditional two-step and the more recent one-step approaches to identify EM. Sensitivity analysis is conducted, including and excluding mining firms.</p><p>The findings reveal a non-monotonic relationship between DR and REM, with a concave pattern observed for all measures of REM. Initially, REM increases as DR rises, but it subsequently declines with further increases in DR. AEM, on the other hand, shows a convex or monotonically decreasing relationship with DR, although statistical significance is not consistently observed. The results for TEM align with those of REM, indicating the dominance of REM in TEM. These findings remain consistent when excluding mining industry observations and using different measures for EM and DR.</p><p>The implications of these findings are significant for managers, firms, regulators, lenders, investors, and other stakeholders. The non-monotonic relationship between DR and REM offers insights for decision-making and determining appropriate levels of EM during varying levels of DR. Regulators can utilise this relationship to identify potential risk areas and develop effective regulations. Lenders can assess financial statements more vigilantly, and investors can make more accurate risk assessments and informed investment decisions. The robustness of the results and the inclusion of different EM measures provide valuable insights to auditors, analysts, and government professionals, enhancing their understanding of the complexities and risks associated with EM during varying levels of DR.</p><p>The study also uncovers that the relative use of AEM and REM is complimentary, but the impact of DR dampens the increase in REM for a given increase in AEM. This result holds across primary and alternative measures of DR and is of significant interest to managers, firms, regulators, and other stakeholders. It provides insights into the interplay between AEM and REM, enabling informed decisions about EM strategies under different levels of DR. Regulators can leverage this information to identify potential risk areas and develop effective regulations to mitigate EM practices that could lead to financial instability. Lenders and investors benefit from understanding how DR affects the relative use of AEM and REM, enabling them to assess financial statements and manage investment risk more accurately. The study’s findings contribute to a deeper understanding of EM dynamics and have practical implications for various stakeholders in the financial ecosystem.</p><p>Furthermore, the thesis investigates EM measures during the GFC and the moderating effect of the GFC on the relationship between DR and EM. The inclusion of REM and TEM, in addition to AEM, provides a comprehensive understanding of how firms managed their earnings during the GFC, offering insights into the effectiveness and implications of different EM strategies during a financial crisis. It confirms the decline of AEM during the GFC, reinforcing existing knowledge about the impact of the crisis on EM practices. Additionally, it identifies a negative impact of the GFC on REM and TEM, providing further evidence of the challenges and changes in EM strategies faced by firms during the economic crisis. The study also finds an insignificant moderating effect of the GFC on the relationship between DR and REM, as well as DR and TEM, shedding light on EM variation across different economic stages.</p><p>Overall, this thesis contributes to the EM literature by examining the non-monotonic impact of DR on EM measures, comparing different approaches to identify EM, exploring the moderating effect of DR on the relative use of AEM and REM, and investigating EM measures during the GFC. The insights from this research assist managers in decision-making, firms in adapting financial management strategies, regulators in developing policies, lenders in risk assessment, and investors in understanding the complexities and risks associated with EM. The findings have practical implications for various stakeholders in the financial realm, guiding decision-making, regulatory efforts, risk assessment, and investment strategies.</p><p>Keywords: earnings management, accruals earnings management, real earnings management, default risk, global financial crisis, one-step approach, two-step approach.</p>

Real Earnings Management (REM) and Accrual Earnings Management (AEM) Around Seasoned Equity Offerings (SEOs) in Australia and Subsequent Operating Earnings Performance

This study examines the influence of Corporate Social Responsibility on accrual earnings management and real earnings management. This study using control variables company size, KAP quality, and leverage. Sample of this study Obtained with purposive sampling for all non-financial company listed in the Indonesia Stock Exchange from 2001 to 2012. This study will use the data secondary, such as annual report. Data analysis will perform using multiple regressions. Result show that Corporate Social Responsibility is influence to accrual earnings management. Corporate Social Responsibility is a real influence to both abnormal earnings management of cash flow from operations and abnormal of production costsDOI: 10.15408/etk.v15i1.3116

Abstract. The purpose of this study is to examine the effect of corporate social responsibility (differentiated into strategic and non-strategic) on earnings management. This study further distinguishes earnings management into accrual and real earnings management. In addition, this study also aims to examine the moderating role of investor protection on the association between strategic and non-strategic social responsibility and earnings management. The research sample is banking companies listed in 5 ASEAN countries. The results show a positive effect of non-strategic corporate social responsibility on accrual earnings management, but insignificant to real earnings managementt. The strategic corporate social responsibility has no significant effect on both type of earnings management. Investor protection only has a moderating role in the relationship between non-strategic social responsibility on accrual earnings management. Keywords. Banking; Corporate Social Responsibility; Earnings Management; Investor Protection. Abstrak. Tujuan penelitian ini adalah untuk membuktikan bahwa terdapat pengaruh tanggung jawab sosial yang dibedakan menjadi strategis dan non strategis terhadap manajemen laba. Penelitian ini membedakan manajemen laba menjadi manajemen laba akrual dan rill. Selain itu, penelitian ini juga bertujuan untuk membuktikan pengaruh peran perlindungan investor dalam memoderasi pengaruh tanggung jawab sosial strategis dan non strategis terhadap manajemen laba. Sampel penelitian adalah perusahaan perbankan yang terdaftar di 5 negara ASEAN. Hasil penelitian menunjukkan pengaruh positif tanggung jawab sosial non strategis terhadap manajemen laba akrual, namun tidak berpengaruh signifikan ke manajemen laba riil. Tanggung jawab sosial strategis tidak berpengaruh signifikan terhadap kedua jenis manajemen laba. Perlindungan investor hanya mempunyai peranan moderasi terhadap hubungan antara tanggung jawab sosial non strategis terhadap manajemen laba akrual.

The link between corporate social responsibility (CSR) and earnings management represents an attractive empirical research topic in recent years. In view of the heterogeneous research results, the purpose of this structured literature review is to analyze the contextual factors of this complex relationship. We selected 107 quantitative peer‐reviewed archival studies on that topic and explain a possible positive and negative link between CSR and earnings management by the moral licensing hypothesis (principal agent theory) and the moral track hypothesis (stakeholder theory). We focus on firm‐ and country‐related moderator effects as contextual factors. Country‐specific studies are separated in developed (Anglo‐American and Continental European settings) and developing countries (African and Asian settings), code and case law regimes as well as the degree of shareholder protection and legal enforcement. In line with stakeholder theory, we stress that most of the included studies found a negative impact of CSR on earnings management with a focus on CSR performance and accruals‐based earnings management. Other measures, for example, CSR reporting, sub‐pillars of CSR performance, and real earnings management, are inconclusive due to reduced research activity. We do not find any structural changes between developed and developing countries, case and code law regimes, and regarding the strength of shareholder protection and legal enforcement. However, there are clear indications that corporate and country governance strengthens (weakens) the negative (positive) influence of CSR on earnings management. We stress major limitations of prior research and formulate useful recommendations for future research.

The present study utilizes agency theory and the upper echelons theory (UET) to investigate whether there is a moderating effect of family ownership concentration (FOWC) on the association between CEO demographic attributes and two forms of earnings management (EM), specifically accruals earnings management (AEM) and real earnings management (REM). Additionally, this study investigates whether CEO demographic attributes affect EM (AEM and REM) in Jordanian companies. The study sample includes 137 companies listed on the Amman Stock Exchange (ASE) from 2017 to 2021, with the banking and insurance sectors excluded, resulting in 685 company-year observations. To accomplish the study’s goals, feasible generalized least squares estimation (FGLS) regressions were applied. The findings indicate that CEO non-duality and age decrease REM and improve the quality of financial reporting (QFR). However, they indicate that CEO age increases AEM, and family ownership concentration enhances the power of older CEOs to engage in AEM and affects QFR. The study finds that a CEO with high education does not affect EM but that the presence of family ownership increases a CEO’s capacity with high education to reduce EM (AEM and REM) and generate trustworthy financial reports. However, we don’t find any relationship between CEO gender and EM (AEM &REM), but family ownership increases male CEOs’ power to engage in AEM. In addition, the outcome shows that family ownership concentration interacts with CEO non-duality and leads to restricting REM and engagement in AEM practices. This study is among the earliest attempts to examine how family ownership concentration affects the connection between CEO demographic attributes and EM, using both types of EM (AEM and REM). Thus, the results of this study are significant in providing meaningful insights for various stakeholders, such as management, investors, and owners, about the QFR and EM practices in emerging markets. Also, the outcomes of this study can contribute significantly to the existing literature on CEO characteristics, family ownership concentration, and EM practices. The findings can be used by the board of directors, policymakers, and regulators to re-evaluate the selection criteria for CEOs based on specific characteristics that can affect QFR. However, the results may not be applicable to markets that are characterized by dispersed ownership structures, where family ownership is not a dominant factor.

The present study investigates the ethics of chaebol firms. The ethics includes both external ethics and internal ethics. The ethics of chaebol firms is tested using corporate social responsibility (CSR), which represents corporate external ethics, and earnings management, which represents corporate internal ethics. The empirical result shows that chaebol firms conduct less accrual earnings management, while conducting more real earnings management. Chaebol firms are found to be active in CSR activities. That is, chaebol firms seem to be ethical externally, but unethical internally. In addition, those chaebol firms that diligently conduct CSR activities are shown to conduct less accrual and real earnings management. Although chaebol firms are unethical internally, active CSR activities are judged to reduce the internal unethicality of chaebol firms. The present study is meaningful in that it analyses the ethics of chaebol firms, which occupy a considerable proportion in South Korean economy, from various angles.

Background: Enron was considered a strong corporate social performer when their infamous accounting scandal emerged in 2000. Literature suggests that companies use corporate social responsibility (CSR) to disguise corporate misconduct. Aim and Setting: This study examines one type of corporate misconduct, namely, earnings management (EM). Prior studies have found significant associations between CSR performance and EM; however, none of these studies controlled for CSR disclosure. This study unbundles the effects of CSR performance and CSR disclosure on EM. To examine the relationship between CSR performance and CSR disclosures and EM of listed South African companies. Methods: A company included on the Socially Responsible Investment (SRI)1 index is used as an indicator of CSR performance. Four measures of CSR disclosure are used. Results and conclusion: The study tests both CSR performance and CSR disclosure against both real earnings management (REM) and accrual-based earnings management (AEM). CSR performance and earnings management: Companies with better CSR performance were more likely to engage in EM through income increasing discretionary accruals. This suggests that managers who inflate earnings may engage in CSR activities to avoid unwanted scrutiny from stakeholders. Companies with better CSR performance were less likely to engage in REM, suggesting that managers with better CSR performance regard the management of earnings through accruals that reverse in the next period less incriminating than managing earnings through actual company resources. CSR disclosure and earnings management: Companies that integrated their CSR disclosures more into their annual report engaged less in income decreasing discretionary accruals, suggesting that managers with incentives to make more CSR disclosures to reduce information asymmetry will also be less inclined to manage earnings.

The purpose of this research is to determine and analyse the effect of CEO characteristics on accrual earnings management and real earnings management with Good Corporate Governance as a moderating variable. The population of this research is the consumer goods industry sector companies listed on the Indonesia Stock Exchange for the period 2012-2021. The purposive sampling technique was used for data collection. The research data analysis technique is multiple linear regression test, interaction test and sub-group test. The findings of this research indicate that CEO narcissism, CEO gender and CEO compensation affect accrual earnings management and real earnings management. CEO tenure has no effect on accrual earnings management and real earnings management. CEO power can only affect accrual earnings management. Managerial ownership does not act as a moderator for the relationship between CEO narcissism and accrual earnings management and real earnings management. Managerial ownership is able to moderate the relationship between CEO compensation and CEO power with accrual earnings management and real earnings management. Managerial ownership does not moderate the relationship between CEO gender and CEO tenure with accrual earnings management but is able to moderate the effect of CEO gender and CEO tenure on real earnings management. Audit quality is able to moderate CEO narcissism, CEO gender, CEO compensation, CEO tenure and CEO power on earnings management. Based on the research results, company stakeholders need to be aware of the characteristics of the CEO and need to pay attention to the existence of Good Corporate Governance.

PurposeThis paper examines the link between culture, institutional quality and real earnings management and accrual earnings management by combing the study by Hofstede (2001) and Enomoto et al. (2015). The paper tries to test the effect of culture on institutional quality and both real earnings management (REM) and accrual earnings management (AEM).Design/methodology/approachThe sample of the research paper includes 38 countries. Hofstede cultural dimensions are used to measure cultural values. Public governance indicators published by the World Bank are used as a proxy for measuring the institutional quality. Earning management scores constructed by Enomoto et al. (2015, p. 191) are used for measuring real earnings management (REM) and accrual earnings management (AEM). Partial Least Square (PLS) based Structural Equation Modelling (SEM) is used to test the relationship between culture, institutional quality and earnings management.FindingsThe results support the relationship between culture and institutional quality. Also, the results reveal a significant relationship between culture and accrual earnings management, but an insignificant relationship between culture and real earnings management. In addition to that, another important finding is that institutional quality has a significant impact on real earnings management, but has no significant effect on accrual earnings management.Practical implicationsThe results suggest that standard setters need to consider the quality of institutions to improve the quality of financial reports. Also, it highlights the role of both formal and informal cultures in shaping financial reports.Originality/valueFor the best of our knowledge, this the first time to test the link between culture and institutional quality and comparing the impact on both real earnings management and accrual earnings management.

<p>This research aims at identifying firm’s tendency to execute earnings management throught accruals and real earnings management and its impact to firm performance. This study uses data from 46 manufacturing companies listed in Indonesia Stock Exchange during 2010 to 2013. Accrual earnings management is measured by discretionary accruals based on modified Jones model’s (1991), whereas real earnings management used is based on the Roychowdhury model’s (2006), there is real earnings management through operating cash flow and production costs . Firm performance is measured by Tobin’s q. Then, testing of hypotheses to analized impact of earnings management on firm performance using multiple regression analysis.</p><p>The results show that the manufacturing companies listed in Indonesia Stock Exchange tend to execute accruals earnings management and real earnings management throught the operating cash flow and production cost. Moreover, accruals earnings management and real earnings management through operating cah flow and production costs effect firm performance. The research is expected to be information for business people about the existence of accrual earnings management and real earnings management and its impact to firm performance, so it can be a consideration in making investment decisions.</p><p> </p><strong>Keywords:</strong> accrual earnings management, real earnings management, Tobin’s q

This study aims to explore the difference between the level of both types of earnings management; Accrual Earnings Management (AEM) and Real Activity Earnings Management (REM)) between state and privately owned Egyptian companies. Using a sample of non-financial state and privately owned companies over the period from 2010 to 2017, with 1030 firm–year observations. The results reveal that there are no significant differences in the level of both AEM and REM using the two proxies; sales manipulation and discretionary expenses; between state and privately owned firms. This result could be attributed to the Egyptian government’s attempt to eliminate the differences between state-owned and private owned companies, especially in recent years.

This study explores the informational and opportunistic characteristics of earnings management in ASEAN countries. Earnings management has an impact on the profitability of the companies. A positive relation between earnings management and future profitability reveals that earnings management is informational. However, negative a relation between earnings management and future profitability indicates that earnings management is opportunistic. This study uses data from the OSIRIS database. Four hundred and eighty five (485) companies from the Philippines, Indonesia, Malaysia, Singapore, and Thailand are used as a sample. This study focuses on 2 types of earnings management: (1) accrual earnings management and (2) real earning management. Modified Jones model is used for the accrual earnings management. Real earnings management follows Roychowdury (2006). The results show that the characteristics of earnings management are not consistent. Real earnings management is informational in Thailand, but opportunistic in Indonesia. Accruals earnings management is informational in the Philippines, but opportunistic in Malaysia. Country factors such as culture may explain the inconsistency of the results in ASEAN.Keywords: accruals earnings management; ASEAN countries; future profitability; informational; opportunistic; real earnings management

Abstract
 
 The aim of this study is to understand whether real earnings management (REM) and accruals earnings management (AM) can be used as substitute of one another in the context of Pakistan. Additionally, we also examine the effect of country-level political risk on earnings management. To achieve our desire objectives, we used a panel sample of 197 Pakistani firms for a period of 13 years (2007-2019). To measure REM, we follow Roychowdhury (2006) and to measure AM, we follow Jones (1991) and modified Jones (1995) model. For data analysis, we used simultaneous equation modelling and ordinary least square (OLS) regression with time and firm fixed effects. The results indicate that when the cost associated with REM(AM) increases, the firm’s inclination towards AM(REM) decreases which suggests that managers use both REM and AM approaches as substitutes of one another. Further, the results show that country-level political risks positively affect real REM while it has insignificant effect on AM. Moreover, the adoption of IFRS as accounting standards does not have any effect on the earnings management in Pakistan. This study can be extended to firm-level risk factors to examine their role in earnings management. Moreover, how manager use to adopt REM and AM in the highly regulated industries i.e., financial and services industries, also provides a promising opportunity for future research.

This research aims to offer empirical insights into variations in earnings management within companies categorized in the Environmental, Social, and Governance (ESG) score ranking, and seeks to establish a correlation between earnings management practices and Environmental, Social, and Governance (ESG) performance. The study scrutinizes accrual earnings management alongside real earnings management. The Environmental, Social, and Governance (ESG) score ranking comprises four categories: low, medium, high, and severe. Accrual earnings management is gauged through the modified Jones model, while real earnings management is assessed using three proxies ABNCFO, ABNPROD, and ABNDISC. The research focuses on manufacturing companies possessing Environmental, Social, and Governance (ESG) scores and adopts a purposive sampling approach. The outcomes reveal distinctions between ABNCFO and ABNPROD real earnings management in the severe and low ESG rating groups, whereas no differences exist in accrual earnings management and ABNPROD real earnings management. Additionally, the study establishes that ABNCFO and ABNDISC real earnings management significantly influence Environmental, Social, and Governance (ESG) performance positively. Conversely, accrual earnings management shows no adverse impact on Environmental, Social, and Governance (ESG) performance, and ABNPROD real earnings management exhibits a positive albeit insignificant effect on Environmental, Social, and Governance (ESG) performance. The practical implication of this research is that when the company has a high ESG score which reflects the uncertainty of the company's future operations, the company tends to carry out real earnings management in the form of abnormal cash flow operations (ABNCFO) and abnormal discretionary expenses (ABNDISC).