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Earnings Management And Corporate Social Responsibility

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Author Info
Diego Prior ()
Jordi Surroca ()
Josep A. Tribo ()

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Abstract

Drawing on stakeholder-agency theory and the earnings management framework, we explore the relationship between discretionary accounting accruals and corporate social responsibility. We hypothesize a positive connection between corporate social responsibility and earnings management. We argue that managers may satisfy the interest of stakeholders as an entrenchment strategy once these managers have followed earnings management practices, thereby damaging the long-term interests of shareholders. Also, we expect that the positive connection between corporate social responsibility and financial performance is negatively moderated when combined with earnings management practices. We empirically demonstrate our theoretical contention making use of a database comprising of 599 firms from 32 different nations for the period 2002-2004.

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Paper provided by Universidad Carlos III, Departamento de Economía de la Empresa in its series Business Economics Working Papers with number wb062306.

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Date of creation: Sep 2006
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Handle: RePEc:cte:wbrepe:wb062306

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  1. Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September. [Downloadable!] (restricted)
  2. Dechow, Patricia M. & Sloan, Richard G., 1991. "Executive incentives and the horizon problem : An empirical investigation," Journal of Accounting and Economics, Elsevier, vol. 14(1), pages 51-89, March. [Downloadable!] (restricted)
  3. Steven J. Carlson & Chenchuramaiah T. Bathala, 1997. "Ownership Differences and Firms' Income Smoothing Behavior," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 24(2), pages 179-196. [Downloadable!] (restricted)
  4. Cespa, Giovanni & Cestone, Giacinta, 2004. "Corporate Social Responsibility and Managerial Entrenchment," CEPR Discussion Papers 4648, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Tirole, Jean, 2001. "Corporate Governance," Econometrica, Econometric Society, vol. 69(1), pages 1-35, January.
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  6. Kothari, S.P. & Leone, Andrew J. & Wasley, Charles E., 2005. "Performance matched discretionary accrual measures," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 163-197, February. [Downloadable!] (restricted)
  7. Nagy, Albert L. & Neal, Terry L., 2001. "An empirical examination of corporate myopic behavior: a comparison of Japanese and U.S. companies," The International Journal of Accounting, Elsevier, vol. 36(1), pages 91-113, 02. [Downloadable!] (restricted)
  8. Gillian H.H. Yeo & Patricia M.S. Tan & Kim Wai Ho & Sheng-Syan Chen, 2002. "Corporate Ownership Structure and the Informativeness of Earnings," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 29(7&8), pages 1023-1046. [Downloadable!] (restricted)
  9. Catherine J. Morrison-Paul & Donald S. Siegel, 2006. "Corporate Social Responsibility and Economic Performance," Rensselaer Working Papers in Economics 0605, Rensselaer Polytechnic Institute, Department of Economics. [Downloadable!]
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