Corporate Social Responsibility Disclosure and Management Opportunism: The Role Moderating of Corporate Governance

Document Type : Research Paper

Authors

1 Prof., Department of Accounting, Faculty of Accounting and Financial Sciences, College of Management, University of Tehran, Tehran, Iran.

2 Assistant Prof., Department of Accounting, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran.

3 MSc. Student, Department of Accounting, Faculty of Accounting and Financial Sciences, College of Management, University of Tehran, Tehran, Iran.

Abstract

Objective: In the present day, companies are not only responsible for enhancing shareholder wealth but also for placing a significant emphasis on social and environmental considerations. Transparency in non-financial reporting, including Corporate Social Responsibility (CSR), now holds equal importance alongside financial disclosures. The more responsible and ethical a company is regarding social and environmental issues, the less incentive it has to engage in unethical financial practices, such as earnings management. According to the existing literature, corporate governance mechanisms have been created to reduce the representation problem between managers and shareholders. These mechanisms act as a monitoring system to align the managers' interests with the beneficiaries and can lead to reducing the opportunistic behavior of the management. The purpose of this research is to investigate the existence and direction of the relationship between corporate social responsibility (CSR) disclosure and two types of earnings management (real and accrual) based on the opportunistic managerial view and also to study the moderating effect of corporate governance mechanisms on this relationship.
Methods: To test and analyze the hypotheses, the panel data of 108 companies from 2016 to 2021 and multivariable regression controlling the fixed effects of year and industry were used. The statistical population of this research includes all the companies admitted to the Tehran Stock Exchange after applying some restrictions.
Results: The research findings showed a positive and negative relationship between CSR disclosure and accrual, and real earnings management, respectively. Also, the board of directors' independence and institutional ownership have strengthened and weakened the relationship between CSR disclosure and real, accrual earnings management, respectively. In addition, the results of the reverse causality test confirmed the two-way relationship between CSR disclosure and earnings management.
Conclusion: Despite the extensive study of CSR in social science research, the reasons companies engage in CSR activities and spend much capital on it still need to be explained and clarified. This ambiguity can be related to the missing link of earnings management. The results support the research hypotheses and the opportunistic view of management in the Iranian context. For this purpose, the managers used CSR initiatives to manipulate the accrual earnings. However, due to the extensive adverse effects of real earnings management on the company's future performance, managers were less inclined to use this type of earnings management. Also, corporate governance mechanisms have been able to act significantly to moderate these effects. The results of this study carry noteworthy implications for policymakers, managers, and various stakeholders. The findings have significant implications for the stakeholders of different companies, including regulatory authorities, policymakers, developers of the organizational strategy of companies, and academics. Policymakers are advised to reward companies that pursue CSR activities solely for social development while being wary of companies that use CSR activities for covering earnings management. Also, managers can use the results of this research to implement and formulate CSR strategies, which will help them achieve financial transparency when publishing and disclosing the organization's financial information.

Keywords

Main Subjects

References

 
Baron, R. M., & Kenny, D. A. (1986). The moderator-mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173–1182.
Bedard, J., Chtourou, S., & Courteau, L. (2004). The effect of audit committee expertise, independence, and activity on aggressive earnings management. Auditing: A Journal of Practice & Theory, 23(2), 13–35.
Behbahaninia, P. S., & Asgari, N. (2021). Social Responsibility, Corporate Governance and Lack of Financial Reporting Transparency In Tehran Stock Exchange. Empirical Research in Accounting, 11(4), 55-76. (in Persian)
Bozzolan, S., Fabrizi, M., Mallin, C. A., & Michelon, G. (2015). Corporate social responsibility and earnings quality: International evidence. The International Journal of Accounting, 50(4), 361–396.
Buertey, S., Sun, E. J., Lee, J. S., & Hwang, J. (2020). Corporate social responsibility and earnings management: The moderating effect of corporate governance mechanisms. Corporate Social Responsibility and Environmental Management, 27(1), 256-271.
Calegari, M. F., Chotigeat, T., & Harjoto, M. (2010). Corporate social responsibility and earnings reporting. Journal of Current Research in Global Business, 13(20), 1–14.
Chakroun, S.,& Ben Amar, A. (2022). Earnings management, financial performance and the moderating effect of corporate social responsibility: evidence from France. Management Research Review, 45(3), 331-362.
Chih, H. L., Shen, C. H., & Kang, F. C. (2008). Corporate social responsibility, investor protection, and earnings management: Some international evidence. Journal of Business Ethics, 79, 179–198.
Cho, E. & Chun, S. (2016). Corporate social responsibility, real activities earnings management, and corporate governance: evidence from Korea. Asia-Pacific Journal of Accounting & Economics, 23(4), 400-431.
Choi, B.B., Lee, D. & Park, Y. (2013). Corporate Social Responsibility, Corporate Governance and Earnings Quality: Evidence from Korea. Corporate Governance: An International Review, 21(5), 447-467.
Cohen, D., & Zarowin, P. (2010). Accrual based and real earnings management activities around seasoned equity offerings. Journal of Accounting and Economics, 50(1), 2–19.
Cohen, J., Krishna moorthy, G. & Wright, A. (2008). Form versus substance: the implications for auditing practice and research of alternative perspectives on corporate governance. Auditing: A Journal of Practice and Theory, 27(2), 181-198.
Dang, H.N., Hoang, K. & Van Nguyen, L. (2021). Do socially responsible firms always disclose high-quality earnings? Evidence from an emerging socialist economy. Asian Review of Accounting, 29(3), 291-306.
Davidson, R., & MacKinnon, J. G. (1998). Graphical methods for investigating the size and power of hypothesis tests. The Manchester School, 66(1), 1–26.
Dechow, P. & Dichev, I. (2002). The quality of accruals and earnings: the role of accrual estimation errors. The Accounting Review, 77 (1), 35–59.
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193–225.
Dichev, I. D., & Skinner, D. J. (2002). Large–sample evidence on the debt covenant hypothesis. Journal of Accounting Research, 40(4), 1091–1123.
Dyllick T, Hockerts K. (2002). Beyond the business case for corporate sustainability. Business Strategy and the Environment, 11, 130–141.
Ehsan, S., Tariq, A., Nazir, M.S., Shabbir, M.S., Shabbir, R., Lopez, L.B. & Ullah, W. (2022). Nexus between corporate social responsibility and earnings management: Sustainable or opportunistic. Managerial and Decision Economics, 43(2), 478-495.
Elkington, J. (1994). Toward the sustainable corporation: Win-win-win business strategies for sustainable development. California Management Review, 36, 90–100.
Fanti, L., & Buccella, D. (2019). Managerial delegation games and corporate social responsibility. Managerial and Decision Economics, 40(6), 610–622.
Faraji, O., Jannati Daryakenari, F., Mansouri, K., & Younesi Moti, F. (2020). Corporate Social Responsibility and Firm Value: The Mediating Role of Earnings Management. Social Capital Management, 7(1), 25-58. (in Persian)
Foroghi, D., Hamidian, N & Bahrami, F (2022). The Effect of Corporate Social Responsibility on Fraudulent Financial Reporting, Journal of Financial Accounting Knowledge, 9(1), 1-27. (in Persian)
Francis, J.R., Michas, P. & Seavey, S. (2013). Does audit market concentration harm the quality of audited earnings? Evidence from audit markets in 42 countries. Contemporary Accounting Research, 30(1), 325–355.
Gaver, J. J., Gaver, K. M., & Austin, J. R. (1995). Additional evidence on bonus plans and income management. Journal of Accounting and Economics, 19(1), 3–28.
Gras-Gil, E., Manzano, M.P. & Fernandez, J.H. (2016). Investigating the relationship between corporate social responsibility and earnings management: evidence from Spain. Business Research Quarterly, 19(4), 289-299.
Greene, W. (2005). Reconsidering heterogeneity in panel data estimators of the stochastic frontier model. Journal of Econometrics, 126(2), 269–303.
Grougiou, V., Leventis, S., Dedoulis, E., & Owusu‐Ansah, S. (2014). Corporate social responsibility and earnings management in U.S. banks. Accounting Forum, 14, 1–15.
Gujarati, D. (2007). Fundamentals of Econometrics. Translated by: Hamid Abrishami, Tehran: Tehran University Press. (in Persian)
Hajiha, Z. & Shakeri, A. (2019). Relationship between corporate governance and commitment to fulfill social responsibilities in companies listed on the Tehran Stock Exchange. Financial accounting and auditing research, 11(44), 175-192. (in Persian)
Han, S.H., Kang, K., & Shin, Y. S. (2016). Bond ratings, corporate governance, and cost of debt: The case of Korea.Journal of Asian Finance, Economics and Business, 3(3), 5-15.
Hassanzadeh, S., & Mashayekhi, B. (2019). A Conceptual Model for the Reasons and Circumstance of Earnings Management in Iranian Banks. Accounting and Auditing Review, 26(3), 371-393. (in Persian)
Hemingway, C., & Mackling, W. (2004). Managers' personal values as drivers of corporate social responsibility. Journal of Business Ethics, 50(1), 33–44.
Hesarzadeh, R. (2022). Hypotheses with Moderating Variables. Mashhad, University of Mashhad press. (in Persian)
Higgins, C., Milne, M.J. & Gramberg, B. (2015). The Uptake of Sustainability Reporting in Australia. Journal of Business Ethics, 129(2), 445-468.
Hong, Y. & Andersen, M. L. (2011). The relationship between corporate social responsibility and earnings management: An explanatory study. Journal of Business Ethics, 104, 461-471.
Hosayni, S. R., Hajiannejad, A., & Ganji, H. (2022). An Analyzing of Earnings Management and its Persistence in Leveraged and Nonleveraged Companies Using Markov Chains. Accounting and Auditing Review, 29(1), 59-95.)in Persian)
Jaggi, B., Leung, S. & Gul, F. (2009). Family control, board independence and earnings management: Evidence based on Hong Kong firms. Journal of Accounting and Public Policy, 28 (4), 281–300.
Jian, J., He, K., Liu, Y., & Sun, Y. (2023). Corporate social responsibility: opportunistic behavior under earnings management?. Asia-Pacific Journal of Accounting & Economics, 1-22.
Jiraporn, P., & Gleason, K. C. (2007). Delaware incorporation and earnings management: An empirical analysis. Journal of Applied Finance, 17, 40–51.
Jo, H., & Harjoto, M. A. (2012). Corporate governance and firm value: The impact of corporate social responsibility. Journal of Business Ethics, 103, 53–72.
Jones, J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29 (2), 193–228.
Jordaan, L. A., De Klerk, M., & De Villiers, C. J. (2018). Corporate social responsibility and earnings management of South African companies. South African Journal of Economics and Management, 21(1), 1–3.
Kallapur, S., Sankaraguruswamy, S., & Zang, Y. (2010). Audit market concentration and audit quality. Available at SSRN 1546356.
Kim, Y., Park, M.S. & Wier, B. (2012). Is earnings quality associated with corporate social Responsibility. The Accounting Review, 87(3), 761-796.
Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of Accounting and Economics, 33, 375–400.
Koh, K., Li, H., & Tong, Y. H. (2023). Corporate social responsibility (CSR) performance and stakeholder engagement: Evidence from the quantity and quality of CSR disclosures. Corporate Social Responsibility and Environmental Management, 30(2), 504-517.
Kordestani, G., Ghaderzadeh, S., & Haghighat, H. (2018). Impact of social responsibility disclosure on accounting. Economic and market based Measures of corporate performance evaluation, Journal of Accounting Advance, 10(1), 187-217. (in Persian)
Kothari, S. P., Leone, A. J. & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39 (1), 163-197.
Kurdestani, G. & Tutley, R (2013). Identifying efficient and opportunistic profit management approaches in profit quality levels. Accounting and Auditing Reviews, 21(3), 293-312.
 (in Persian)
Liao, L.K., Mukherjee, T., & Wang, W. (2015). Corporate governance and capital market structure dynamics: An empirical study. The Journal of Financial Research, 38(2), 169–191.
Mansourzare, M., Bani Mahd, B., Vakili Fard, H. & Roodpashti, F. (2019). The role of narcissism in the tendency to manage earnings. Experimental Accounting Research, 10(4), 1-24. (in Persian)
Martínez-Ferrero, J., Gallego-_Alvarez, I., & García-S_anchez, I. M. (2015). A bidirectional analysis of earnings management and corporate social responsibility: The moderating effect of stakeholder and investor protection. Australian Accounting Review, 25(4), 359–371.
Meshaykhi, B. & Shakri, M. (2022). Corporate governance: Concepts and case studies, Bourse Publications, second edition. (in Persian)
Mohammad Rezaei, F. & Mohammad Saleh, N. (2016). Audit report lag: the role of auditor type and increased competition in the audit market. International Journal of Auditing, 20(1), 87, 100.
Mohammadrezaei, F., Manteghi, Kh. & Abbasi, E. (2017). The Effects of Stagflation on Real and Accrual-based Earnings Management. Management Accounting, 10(33), 123-138.
(in Persian)
Mousavi, A, Shahveisi, F, & Rezaei, F (2018). Developing the Corporate Social Responsibility Model and its Impact on the Earnings Quality. Journal of Accounting and Auditing Researches, 10(39), 167-188. (in Persian)
Muttakin, M.B., Khan, A. & Azim, M.I (2015). Corporate social responsibility disclosures and earnings quality: are they a reflection of managers' opportunistic behavior? Managerial Auditing Journal, 30(3), 277-298.
Namazi, M., & Namazi, N.R. (2016). Conceptual analysis of moderator and mediator variables in business research. Procedia Economics and Finance, (36), 540-554.
Nikbakht, M. R., & Ahmadkhanbeigi, M. (2018). The Impact of Corporate Governance on Financial Reporting Quality: Integrated Approach. Accounting and Auditing Review, 25(3), 433-455. (in Persian)
Nikoomaram, H., Noravesh, I. &Mehrazin, A. (2009). The evaluation of accrual models in detecting earnings management, Journal of Management Research, 20 (82), 1-20.
(in Persian)
Petrovits, C.M. (2006). Corporate-sponsored foundations and earnings management. Journal of Accounting and Economics, 41(3), 335-362.
Porter, M. E., & Kramer, M. R. (2006). Strategy and society: The link between competitive advantage and corporate social responsibility. Harvard Business Review, 84(12), 78–92.
Prior, D., Surroca, J., & Tribo, J. (2008). Are socially responsible managers really ethical? Exploring the relationship between earnings management and corporate social responsibility. Corporate Governance: An International Review, 16(3), 160–177.
Rahmani, A., & Bashiri Manesh, N. (2013). Detecting power of earnings management models. Accounting Research, 4 (19), 53-73. (in Persian)
Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42(3), 335–370.
Safari Graili, M., Rezaei Pitehnoi, Y., & Nowrozi, M (2016). Earnings management and readability of financial reporting: An empirical test of the opportunistic approach. Auditing Knowledge, 17(69), 217-230. (in Persian)
Saleh, M., Zulkifli, N., & Muhamad, R. (2010). Corporate social responsibility disclosure and its relation on institutional ownership: Evidence from public listed companies in Malaysia. Managerial Auditing Journal, 25(6), 591-613
Samuel, C. (1996). Stock market and investment: Governance role of the market. Policy Research Working Paper No. 1578, The World Bank, Washington DC.
Sarraf, F, Barzegar, G, & Mohammadi, M (2018). Firms’ Earnings Smoothing, Corporate Social Responsibility and Value. Journal of Accounting and Auditing Researches, 10(39), 189-210. (in Persian)
Solomon, J. F., Lin, S. W., Norton, S. D., & Solomon, A. (2003). Corporate governance in Taiwan: Empirical evidence from Taiwanese company directors. Corporate Governance: An International Review, 11(3), 235–248.
Teoh, S. H., Welch, I., & Wong, T. J. (1998). Earnings management and the underperformance of seasoned equity offerings. Journal of Financial Economics, 50(1), 63–99. (in Persian)
Toukabri, M., Jilani, P. F., & Jemâa, O. B. (2014). The interaction between environmental accounting practices and earnings management. Journal of Business Studies Quarterly, 5(3), 99.
Velte, P. (2017). Does ESG performance have an impact on financial performance? Evidence from Germany. Journal of Global Responsibility, 8(2), 169-178.
Wood, D.J. (2010). Corporate social performance measurement: A review. International Journal of Management Reviews, 12, 50–84.
Yar ahmadi, J., & Mohammadi, A (2020). The Impact of Family Involvement on the Relationship between Corporate Social Responsibility and Earnings Management. Journal of Accounting and Social Interests, 10(3), 93-115 .)in Persian)
Zahra, S. A., Priem, R. L. & Rasheed, A. A. (2005). The antecedents and consequences of top management fraud. Journal of Management, 31, 803–28.
Zolfaghari, M., talebnia, G. A., & Pourzamani, Z (2019). Efficient Opportunistic Earning Management and Financial Constraints: Testing of Debt Hypothesis in Accounting Positive Theories. Empirical Research in Accounting, 9(3), 1-23. )in Persian)
Accounting and Auditing Review
Volume 30, Issue 3
2023
Pages 560-589

Files

Share

How to cite

Statistics