Abstract
The purpose of this paper is to shed light on the effect of corporate social responsibility performance on earnings management. We also examine the moderating role of family ownership on the association between earnings management and socially responsible performance. Based on an international sample of 6,442 firm-year observations from 2006 to 2014, we use several validated analysis and panel-data regression models. We find that social and environmental performance is positively related with earnings management; firms with a greater socially responsible performance show a higher discretionary behavior by promoting actions that mask the real financial and economic performance of the firm. However, we find that this positive relation is lower – moderated - in family-owned firms, mainly because of the fact that family firms show a greater socially responsible behavior aimed to preserve their socioemotional endowments and are negatively associated with earnings management practices.; El objetivo de este artículo es intentar aclarar el efecto de la responsabilidad social corporativa en la manipulación de información. También examinamos el efecto moderador de la familia en la relación entre manipulación de información y responsabilidad corporativa. Basados en una muestra internacional de 6,442 observaciones empresa-año durante los años 2006-2014, usamos análisis de validez y modelos de regresión para datos de panel. Hemos concluido que el desarrollo social y ambiental está positivamente relacionado con la manipulación de información; las empresas con una mayor actividad de responsabilidad social muestran un mayor comportamiento de manipulación a través de la promoción de acciones que enmascaran la realidad financiera y económica de la sociedad. Igualmente, encontramos que esta relación positiva es moderada a la baja en empresas familiares, principalmente porque las empresas familiares muestran una mayor responsabilidad social pues están centradas en conservar sus legados emocionales y así mismo están negativamente asociadas con prácticas relativas a la manipulación de información.
Highlights
Do socially responsible companies follow more earning management practices (EM)? Considering that not all organizations behave in the same way, does this balance vary according to family ownership? These are the research questions examined in this study, with the aim of reinforcing the understanding of the effect played by socially responsible commitment in EM practices – reporting accounting results that do not correspond to those achieved (Kim et al, 2012) - and with the aim of exploring the research gap about the moderating effect of family businesses
Investors are interested in financial information and in social and environmental one (Anderson and Frankle, 1980; Dhaliwal et al, 2014); according to Gavana et al (2017) those companies which are involved in EM activities may be more predisposed to provide corporate social responsibility (CSR) information as an expectation for the investors and markets to receive a good image of the company and, in this way, minimize the risk of financial monitoring
This research analyzes the effect that CSR may have on EM; is socially responsible commitment really ethical? Second, we focus our analysis on the moderating role that family ownership may cause in the relationship between CSR and earning management practices; are family firms moderating the relationship between CSR and EM mainly because they tend to be more socially responsible and show lower EM?
Summary
Companies may adopt different strategies for achieving and maintaining their legitimacy (Suchman, 1995) and their image in markets and society. They may release information with the aim of improving social and environmental performance (Lindblom, 2010), and they may use corporate social responsibility (CSR) to influence the general public and stakeholders’ perceptions regarding their behavior (Dowling and Pfeffer, 1975). Given the importance of EM potential damage (Chih et al, 2008), it is quite interesting to analyze the relationship between CSR performance and EM as an unethical strategy that masks the real financial and economic data of the firm
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