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Earnings management and corporate social responsibility

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  • Prior, Diego
  • Surroca Aguilar, Jorge
  • Tribo Gine, José Antonio

Abstract

By drawing on stakeholder-agency theory and the earnings management framework, we hypothesize a positive connection between corporate social responsibility and earnings management. We argue that earnings management damages the interests of stakeholders. Hence, managers who manipulate earnings can deal with stakeholder activism and vigilance by resorting to corporate social responsibility (CSR) practices. Furthermore, CSR is a powerful tool that can be used to garner support from stakeholders and, therefore, provides an avenue for entrenchment to those managers that manipulate earnings, so as to reduce significantly their chances of being fired. Finally, we expect that the positive connection between corporate social responsibility and financial performance is negatively moderated when combined with earnings management practices. We demonstrate empirically our theoretical contention by making use of a database comprising 593 firms from 26 nations for the period 2002-2004.

Suggested Citation

  • Prior, Diego & Surroca Aguilar, Jorge & Tribo Gine, José Antonio, 2007. "Earnings management and corporate social responsibility," DEE - Working Papers. Business Economics. WB wb062306, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    • Handle: RePEc:cte:wbrepe:wb062306
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    Cited by:

    1. Robert Padgett & Jose Galan, 2010. "The Effect of R&D Intensity on Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 93(3), pages 407-418, May.
    2. Zhichuan (Frank) Li & Caleb Thibodeau, 2019. "CSR-Contingent Executive Compensation Incentive and Earnings Management," Sustainability, MDPI, vol. 11(12), pages 1-12, June.
    3. Hoje Jo & Maretno Harjoto, 2012. "The Causal Effect of Corporate Governance on Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 106(1), pages 53-72, March.

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    Keywords

    Corporate social responsibility;

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