CORPORATE SOCIAL RESPONSIBILITY AND REAL EARNINGS MANAGEMENT: DOES BOARD GENDER DIVERSITY MATTER?

doi:10.46281/ijafr.v10i1.1635

Abstract

The purpose of this paper was to examine the moderating effect of board gender diversity on the relationship between corporate social responsibility (CSR) and real earnings management (REM). It drowns on French listed companies from 2005 to 2019. The results show that there is a positive relationship between CSR and REM. Our findings also show that this positive relation is moderated in firms with higher board gender diversity, mainly because female directors show a high socially responsible behaviour and are negatively associated with earnings management practices. Our results are robust to alternative board gender diversity measures, only after the quota law adoption. The positive relationship between CSR and REM suggests that companies with higher CSR performance are exposed to high discretionary behaviour. CSR can be strategically used by managers to hide unethical practices, such as real earnings management activities. In addition, the findings highlight the importance of board gender diversity in reducing agency costs and ensuring higher monitoring, particularly after the quota law adoption.

Highlights

In a world increasingly marked by financial scandals, companies have witnessed a growing awareness about corporate social responsibility (CSR)-related issues
In this paper, we shed light on the impact of corporate social responsibility on real earnings management and investigated the moderating role of board gender diversity in the French firms listed on the SBF 120 index from 2005 to 2019
Our findings show that firms with high CSR commitment are more likely to engage in real earnings management activities

Summary

Introduction

In a world increasingly marked by financial scandals, companies have witnessed a growing awareness about CSR-related issues. Firms basically invest in CSR to improve and defend their legitimacy and reputation. CSR engagement may sometimes be a disguise of firm misconduct and an instrument of manager entrenchment. Thereby, an ethical judgment of firms relies on CSR engagement, https://www.cribfb.com/journal/index.php/ijafr. International Journal of Accounting & Finance Review. Earnings management is perceived as ethical misconduct (Almahrog, Aribi, & Arun, 2018) that constitutes a central issue for investors and accounting academics. Walker (2013, p.446) defines earnings management (EM) as “The use of managerial discretion over (within GAAP) accounting choices, earnings reporting choices, and real economic decisions to influence how underlying economic events are reflected in one or more measures of earnings”

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