Does CEO power moderate the link between corporate social responsibility and bank earnings management

Abstract

PurposeThis paper aims to investigate the relationship between corporate social responsibility (CSR) and earnings management (EM) in US commercial banks and examines whether the chief executive officer (CEO) power can moderate this relationship.Design/methodology/approachFor a sample of American commercial banks covering 2009–2018, several equations and regressions are used to measure the main proxies for bank EM. The authors use the fixed effects model and generalized method of moment to investigate the CSR–EM relationship.FindingsThe authors find a significant positive relation between CSR and EM. Moreover, the authors find that CEO power moderates the CSR–EM relationship. This study also suggests a bidirectional relationship between CSR and EM.Research limitations/implicationsThe findings of this paper have important policy implications for policymakers, regulators and investors in their attempts to constrain EM practices and enhance the quality of financial reporting in US commercial banks.Originality/valueThe study contributes to the literature by exploring the relationship between CSR practices and firm EM by particularly focusing on banking. This study offers new insights into whether the association between CSR practices and EM is moderated by the CEO power. To the best of the knowledge, the relationship between CSR and EM is not studied yet with the moderating role of CEO power.