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Can Corporate Social Responsibility Decrease the Negative Influence of Financial Distress on Accounting Quality?

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  • Jun Hyeok Choi

    (Department of Accounting, Dongguk University, Seoul 04620, Korea)

  • Saerona Kim

    (Department of Accounting, Gyeongsang National University, Jinju-si 52828, Korea)

  • Dong-Hoon Yang

    (Department of Accounting, Dongguk University, Seoul 04620, Korea)

  • Kwanghee Cho

    (Department of Accounting, Dongguk University, Seoul 04620, Korea)

Abstract

This study aimed to test how corporate social responsibility (CSR) can affect the impact of corporate financial distress on earnings management. Based on the existing literature, distressed firms tend to hide their financial crises through earnings manipulation. However, as CSR can positively affect companies in terms of performance, risk reduction, and market response, the better a firm’s CSR is the less managers will attempt earnings management even if they experience temporary distress. Consistent with the literature, test results using Korean-listed companies show that distress increased earnings management, and we confirmed that CSR weakened the positive effect of distress on earnings management. After testing each of the CSR subcategories, significant results were found mainly on environmental performance, reflecting the globally increasing interest in environmental issues. This study contributes to the literature on distress and earnings management, which rarely considers CSR as a moderating factor.

Suggested Citation

  • Jun Hyeok Choi & Saerona Kim & Dong-Hoon Yang & Kwanghee Cho, 2021. "Can Corporate Social Responsibility Decrease the Negative Influence of Financial Distress on Accounting Quality?," Sustainability, MDPI, vol. 13(19), pages 1-19, October.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:19:p:11124-:d:652014
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    3. Ranxin Liao & Jungwon Min, 2021. "How the Public Shaming of Peers Enhances Corporate Social Performance: Evidence from Blacklisted Firms in Japan," Sustainability, MDPI, vol. 13(24), pages 1-17, December.

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