Abstract
Currently, businesses face an information disclosure approach involving the triple bottom line (social, environmental, and financial). This paper aims to investigate the relationship between corporate social responsibility (CSR) information and financial reporting quality (FRQ). We argue that CSR companies behave differently in preparing financial accounting reports. Recent literature supports this theme, providing two distinct hypotheses: transparent financial reporting and retreatment. We used a sample of 1,181 companies from the years 2012 to 2016 to identify if socially responsible companies have better quality financial accounting information. In contrast to the hypotheses raised, we didn't find a relationship between the CSR disclosures and the FRQ proxies. This suggests that sustainable companies do not explain lower or higher levels of earnings management. Our findings remain unchanged when we replace results management through discretionary accruals for manipulations of operating activities. Estimates with comparable samples also didn’t change the interpretations of the results.
Highlights
A combination of accounting measurements and disclosures provide managers legitimate possibilities to present financial statements consonant with their goals
In the discussion of the results, to analyze the extent to which financial characteristics and institutional variables interfere in the relationship between corporate social responsibility (CSR) disclosure and financial reporting quality (FRQ)
This study indicated that CSR companies are less likely to manage results through discretionary accruals and the manipulation of operational activities
Summary
A combination of accounting measurements and disclosures provide managers legitimate possibilities to present financial statements consonant with their goals Their discretion in accounting choices, based on the strict field of law and accounting principles, is recognized as earnings management (EM), and relates to the quality of reported financial information (Fields, Lys, & Vincent, 2001). CSR activities can build a positive image of the company before its entrance into the market (Lev, Petrovits, & Radhakrishnan, 2010) This theoretical framework supports the hypothesis that socially responsible companies tend to present more reliable and transparent financial reporting. 2018) and manipulations of operating activities (Kolsi & Attayah, 2018) don’t have any effects on CSR disclosures In this context, this research aims to verify the relationship between. From the perspective of conflict of interest and based on this research, sustainable companies seem not to care about the reduction of EM
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