Do socially responsible firms always disclose high-quality earnings? Evidence from an emerging socialist economy

Purpose - This paper aims to investigate the linkage between corporate social responsibility (CSR) and earnings quality (EQ) in the context of Vietnam, an Asian emerging economy characterized by high growth for decades and a socialist orientation. As CSR firms are expected to have high EQ, there arise concerns that corporate managers of CSR firms may use the reputation of the firm as a protection mechanism against the cost of earnings management. Design/methodology/approach - The study uses a unique sample of Vietnamese CSR firms listed on Hanoi and Ho Chi Minh Stock Exchanges from 2015 to 2019. Several econometric tests are conducted to investigate whether corporate managers of CSR-active firms actively engage in earnings management and reduce the firms' EQ. Findings - The empirical results show a negative impact of CSR on EQ, meaning that, in general, corporate managers of CSR firms in Vietnam opportunistically manage earnings. This confirms the paradox of the CSR–EQ relationship. In line with an emerging strand of research in the CSR literature, the finding suggests that the agency problem arises in CSR firms where corporate managers use their managerial discretion over accrual accounting to manipulate reported earnings. Practical implications - The finding has practical implications for market participants and policymakers in improving monitoring mechanisms and enhancing the information environment in developing capital markets. Originality/value - This is the first study in the literature that investigates and shows the paradox of the CSR–EQ relationship in the context of Vietnam, a new emerging economy that follows socialist orientation.