Are Socially Responsible Managers Really Ethical? Exploring the Relationship Between Earnings Management and Corporate Social Responsibility
AbstractManuscript Type: Empirical Research Question/Issue: This paper investigates the connection between earnings management and corporate social responsibility (CSR). We argue that earnings management practices damage the collective interests of stakeholders; hence, managers who manipulate earnings can deal with stakeholder activism and vigilance by resorting to CSR practices. Research Findings/Insights: Using archival data from a multi-national panel sample of 593 firms from 26 countries between 2002 and 2004, we find a positive impact of earnings management practices on CSR; this relationship holds for different robustness checks. Also, we demonstrate that the combination of earnings management and CSR has a negative impact on financial performance. Theoretical/Academic Implications: This study draws on a generalized agency theory where managers are seen as the agents of all stakeholders and the earnings management literature to highlight that CSR can be used to garner support from stakeholders and, therefore, provides an opportunity for entrenchment to those managers that manipulate earnings. As such, it suggests new avenues of research for both the corporate governance literature, as well as for the stakeholder perspective. Practitioner/Policy Implications: This study offers insights for policy makers and managers interested in enhancing CSR. For managers, our findings suggest that projecting a socially-friendly image in order to disguise earnings management cannot be sustained over time due to the detrimental effect on financial performance. In addition, this study provides a warning signal to policy makers that
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Corporate Governance: An International Review.
Volume (Year): 16 (2008)
Issue (Month): 3 (05)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0964-8410&site=1
Other versions of this item:
- Prior, Diego & Surroca, Jordi & Tribó, Josep A., 2008. "Are socially responsible managers really ethical? : exploring the relationship between earnings management and corporate social responsibility," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/7439, Universidad Carlos III de Madrid.
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- Mary Mindak & Wendy Heltzer, 2011. "Corporate environmental responsibility and audit risk," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(8), pages 697-733, September.
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- Wendy Heltzer, 2011. "The asymmetric relationship between corporate environmental responsibility and earnings management: Evidence from the United States," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(1), pages 65-88, January.
- Dr. Mohammad Hossein & Vadiei Nowghabi & Saleh Anbarani, 2012. "Survey Effect Of Gender And Field Of Study On Students' Judegment Of The Morality Of Earnings Management," Far East Journal of Marketing and Management, Far East Research Centre, vol. 2(2), pages 12-26, April.
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