Corporate social responsibility and earnings management: The moderating effect of corporate governance mechanisms

Abstract

AbstractResearch Question/IssueThis paper investigates the relationship between (a) corporate social responsibility (CSR) and earnings management (EM) and (b) examines whether corporate governance (CG) mechanisms can moderate the CSR–EM relation.Research MethodologyFixed‐effect regression model is used to estimate the coefficients of the variables.Research Findings/InsightWe find a significant positive relation between CSR and EM. The result highlights the managerial opportunistic use of CSR explained within the agency theoretical framework. We also find that board size and block ownership significantly moderates the CSR–EM relationship.Theoretical/Academic ImplicationsThe paper contributes to the literature on CSR, EM, and CG. Specifically, it contributes to the extant literature by demonstrating why and how CG can significantly influence the CSR–EM nexus. Second, the paper provides some insight on the mixed findings of prior studies that have investigated the relationship between CSR and EM.Practical/Policy ImplicationThe findings have significant implication for both policy makers, firm managers, and other stakeholders. Insights from the study will help develop and implement policies that will strengthen CG structures, especially in emerging markets to protect the interest of shareholders and improve market confidence.