Earnings Management and Corporate Social Responsibility: Evidence from Islamic Banks in GCC

Abstract

The previous literature has drawn attention to the relationship between the financial reporting quality which measured by earnings management (EM) practices and commitment to social accountability or corporate social responsibility (CSR). As far as we know- no evidence about this association regarding to Islamic banking context which characterised by ethical; moral commitment and social accountability. Empirical evidence, however, provides inconclusive results regarding the direction of this association. Using simultaneous equations and longitudinal panel data analysis, we examine the bi-directional EM–CSRD relationship for 29 Islamic banks across Gulf Cooperation Council (GCC) region during 5 years (2012-2016). We demonstrate that, bi-directional EM–CSRD association is not significant. The insignificant findings between EM and CSRD suggest that social reporting for Islamic banks is not being manipulated to cover their EM practices. We provide implications for investors, analysts and regulators