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Doing Good with Creative Accounting? Linking Corporate Social Responsibility to Earnings Management in Market Economy, Country and Business Sector Contexts

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  • Eugene Burgos Mutuc

    (Postgraduate Program in Management, I-Shou University, Kaohsiung 840, Taiwan
    College of Business Administration, Bulacan State University, City of Malolos 3000, Philippines)

  • Jen-Sin Lee

    (Postgraduate Program in Management, I-Shou University, Kaohsiung 840, Taiwan
    Department of Finance, I-Shou University, Kaohsiung 840, Taiwan)

  • Fu-Sheng Tsai

    (Postgraduate Program in Management, I-Shou University, Kaohsiung 840, Taiwan
    Department of Business Administration, Cheng Shiu University, Kaohsiung 833, Taiwan
    Center for Environmental Toxin and Emerging-Contaminant Research, Cheng Shiu University, Kaohsiung 83347, Taiwan
    Super Micro Mass Research and Technology Center, Cheng Shiu University, Kaohsiung 83347, Taiwan)

Abstract

The mandate of doing good with earnings management has been a subject of inconclusive findings from the past literature and leave issues on the benefits of socially responsible activities and financial reporting of the company. This study investigates the effects of corporate social responsibility ( CSR ) on accrual-based ( AEM ) and real-activities earnings management ( REM ). This study hypothesized that the trade-off exists between these two earnings management strategies, in light of increasing attention of CSR among Asian firms. In addition, this study examines whether the performance of firms in socially responsible activities exhibit different patterns of effect across the two measures of earnings management under the market economy, country, and business sector contexts. This study contemplates on 3906 firm-year observations from 2011 to 2017 of eleven countries in Asia. Our findings show that CSR conceals AEM while it constrains REM . These effects vary according to the market economy classifications, country, and business sector types. Each market, country and business sector has different standpoints in implementing CSR activities and earnings management relevant to the culture, macroeconomic considerations and demands from the stakeholders. Lastly, the discernment on the relevance of building corporate citizenship on financial reporting transparency is elaborated.

Suggested Citation

  • Eugene Burgos Mutuc & Jen-Sin Lee & Fu-Sheng Tsai, 2019. "Doing Good with Creative Accounting? Linking Corporate Social Responsibility to Earnings Management in Market Economy, Country and Business Sector Contexts," Sustainability, MDPI, vol. 11(17), pages 1-20, August.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:17:p:4568-:d:260092
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    3. Manish Bansal, 2024. "Unpacking the drivers of earnings management in CSR firms: influence of investor risk perception," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 21(1), pages 127-142, March.
    4. Hosn el Woujoud Bousselmi & Lorena Caridad & Nuria Ceular Villamandos, 2019. "Structural Models in Corporate Social Responsibility: Attraction of Investment in Tunisia," Sustainability, MDPI, vol. 11(18), pages 1-11, September.
    5. Ana Belen Tulcanaza-Prieto & Younghwan Lee & Jeong-Ho Koo, 2020. "Effect of Leverage on Real Earnings Management: Evidence from Korea," Sustainability, MDPI, vol. 12(6), pages 1-20, March.
    6. Wadhaah Ibrahim Almubarak & Kaouther Chebbi & Mohammed Abdullah Ammer, 2023. "Unveiling the Connection among ESG, Earnings Management, and Financial Distress: Insights from an Emerging Market," Sustainability, MDPI, vol. 15(16), pages 1-23, August.
    7. Sharif Mohammad Aqabna & Mehmet Aga & Huthayfa Nabeel Jabari, 2023. "Firm Performance, Corporate Social Responsibility and the Impact of Earnings Management during COVID-19: Evidence from MENA Region," Sustainability, MDPI, vol. 15(2), pages 1-20, January.
    8. Dominika Gajdosikova & Katarina Valaskova & Pavol Durana, 2022. "Earnings Management and Corporate Performance in the Scope of Firm-Specific Features," JRFM, MDPI, vol. 15(10), pages 1-18, September.
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