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Voluntary corporate social responsibility reporting and financial statement auditing in China

Author

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  • Carey, Peter
  • Liu, Li
  • Qu, Wen

Abstract

This study finds a positive association between voluntary corporate social responsibility (CSR) reporting and audit fees in China. In contrast to prior research from the US, CSR reporting in China is associated with greater earnings management. Results suggest that Chinese firms use CSR reporting as a strategic device for window dressing, and that auditors charge higher fees in response to heightened audit risk and greater audit effort. Further, the positive effects of CSR reporting on audit fees and earnings management are more significant for non-state-owned enterprises (non-SOEs) than for state-owned enterprises, which suggests that non-SOEs have not fully embraced the principles of CSR and essentially use CSR reporting to create the appearance of legitimacy. In additional tests, we find that non-SOEs with more highly rated CSR performance or longer CSR reports are associated with lower audit fees and less earnings management.

Suggested Citation

  • Carey, Peter & Liu, Li & Qu, Wen, 2017. "Voluntary corporate social responsibility reporting and financial statement auditing in China," Journal of Contemporary Accounting and Economics, Elsevier, vol. 13(3), pages 244-262.
    • Handle: RePEc:eee:jocaae:v:13:y:2017:i:3:p:244-262
    DOI: 10.1016/j.jcae.2017.09.002
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    Cited by:

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    2. Zhidong Tan & Jianhua Tan & Kam C. Chan, 2021. "Seeing is believing? The impact of air pollution on corporate social responsibility," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(1), pages 525-534, January.
    3. Jianlei Han & Jing He & Zheyao Pan & Jing Shi, 2018. "Twenty Years of Accounting and Finance Research on the Chinese Capital Market," Abacus, Accounting Foundation, University of Sydney, vol. 54(4), pages 576-599, December.
    4. Perera, Luckmika & Jubb, Christine & Gopalan, Sandeep, 2019. "A comparison of voluntary and mandated climate change-related disclosure," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(2), pages 243-266.
    5. Xiaojuan Wu & Patrycja Hąbek, 2021. "Trends in Corporate Social Responsibility Reporting. The Case of Chinese Listed Companies," Sustainability, MDPI, vol. 13(15), pages 1-16, August.
    6. Sun, Xuan Sean & Habib, Ahsan & Bhuiyan, Md. Borhan Uddin, 2020. "Workforce environment and audit fees: International evidence," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(1).
    7. Rui Zhang & Raymond M. K. Wong & Gaoliang Tian & Mohan M. Fonseka, 2021. "Positive spillover effect and audit quality: a study of cancelling China’s dual audit system," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 205-239, March.
    8. Hyun Ah Kim & Nam Chul Jung, 2020. "The Effect of Corporate Social Performance on Audit Hours: Moderating Role of the Emphasis of Matter Paragraphs in Audit Report," Sustainability, MDPI, vol. 12(3), pages 1-17, January.
    9. Ebenezer K. Lamptey & Jin Dong Park & Isaac Bonaparte, 2023. "Does Corporate Social Responsibility Affect the Timeliness of Audited Financial Information? Evidence from “100 Best Corporate Citizens”," JRFM, MDPI, vol. 16(2), pages 1-21, January.
    10. Zixin Zhang & Teck Lee Yap & Jiyoung Park, 2021. "Does voluntary CSR disclosure and CSR performance influence earnings management? Empirical evidence from China," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 18(2), pages 161-178, June.
    11. Tesfaye T. Lemma & Mehrzad Azmi Shabestari & Martin Freedman & Mthokozisi Mlilo, 2020. "Corporate carbon risk exposure, voluntary disclosure, and financial reporting quality," Business Strategy and the Environment, Wiley Blackwell, vol. 29(5), pages 2130-2143, July.
    12. Asif Saeed & Ammar Ali Gull & Asad Ali Rind & Muhammad Shujaat Mubarik & Muhammad Shahbaz, 2022. "Do socially responsible firms demand high‐quality audits? An international evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2235-2255, April.
    13. Ruixin Su & Weizhou Zhong, 2022. "Corporate Communication of CSR in China: Characteristics and Regional Differences," Sustainability, MDPI, vol. 14(23), pages 1-17, December.

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    More about this item

    Keywords

    Corporate social responsibility; Audit fees; Earnings quality; CSR disclosure; Audit risk; Window dressing;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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