The bidirectional relationship between corporate social responsibility and financial reporting quality: Does gender diversity matter? Evidence from US companies

Abstract

AbstractThe aim of the paper is twofold. Firstly, to analyze the bidirectional effects between Corporate Social Responsibility (CSR) and financial reporting quality proxied by earnings management (EM). Secondly, to investigate the moderating role of board gender diversity, the gender of CEO and CFO on these two phenomena. The study employs a Panel Data set of 390 listed US companies for the period 2011 to 2019 (3510 observations). To verify a two‐way relationship between CSR and EM, we estimate a system of simultaneous equations using the GMM estimator proposed by Arellano and Bond (1991). To analyze the moderating role of gender diversity, multiple regression analysis and several robustness tests such as Propensity Score Matching and DID are adopted. Empirical results confirm that US companies engaged in CSR activities are less motivated to practice EM and more likely to produce high financial reporting quality. The study confirms that Gender diversity increases board effectiveness by reducing the level of earnings management, ensuring high quality of financial reporting, and developing CSR activities. Findings are especially important for authorities who intend to impose regulatory quotas for female board membership. The policymakers should consider gender diversity in improving CSR practices for society.