Examining the influence of corporate social responsibility performance on earnings management: A global perspective in the context of sustainable development

Abstract

AbstractThis article examines the relationship between corporate social responsibility and earnings management behavior around the world. Using international data from 35 countries between 2003 and 2019, we find evidence that increased corporate social responsibility tends to mitigate the pressure to manage earnings. These findings are robust to alternate measures of earnings management, corporate social responsibility, as well as controlling for endogeneity caveats by two‐stage‐least square and system generalized‐method‐of‐moments estimations. We further show that the negative association between corporate social responsibility and earnings management is more pronounced for firms in countries with high press freedom or high societal trust. The findings from this article provide implications for investors, analysts, business participants, and regulators.