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The effects of mandatory corporate social responsibility policy on accounting conservatism

Author

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  • Chia-Ling Cheng
  • Fan-Hua Kung

Abstract

Purpose - – This paper aims to investigate whether government-mandated corporate social responsibility (CSR) engenders conservative financial reporting in emerging markets. It is expected that CSR plays a substitute role for governance mechanisms in reducing information asymmetry. Design/methodology/approach - – The C-Score developed by Khan and Watts (2007) was adopted to measure the degree of firm-year specific accounting conservatism. This study uses the CSR rating established by the Shanghai National Accounting Institute. Findings - – Empirical evidence indicates that the government-mandated CSR policy may be sufficient to induce conservative financial reporting. However, due perhaps to political affiliations, the evidence to support this claim is weaker for state-owned enterprises (SOEs) than for non-SOEs. Originality/value - – The findings provide a deeper understanding of the potential role of CSR in firms. The results also provide evidence on the dynamics between CSR activities and the reporting behavior of managers. These findings have important implications for investors, analysts and regulators.

Suggested Citation

  • Chia-Ling Cheng & Fan-Hua Kung, 2016. "The effects of mandatory corporate social responsibility policy on accounting conservatism," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 15(1), pages 2-20, February.
    • Handle: RePEc:eme:rafpps:v:15:y:2016:i:1:p:2-20
    DOI: 10.1108/RAF-12-2014-0135
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    Citations

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    Cited by:

    1. Shankar Shaw, Tara & Raithatha, Mehul & Krishnan, Gopal V. & Cordeiro, James J., 2021. "Did mandatory CSR compliance impact accounting Conservatism? Evidence from the Indian Companies Act 2013," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(3).
    2. Garanina, Tatiana & Kim, Oksana, 2023. "The relationship between CSR disclosure and accounting conservatism: The role of state ownership," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 50(C).
    3. Guo, Jun & Huang, Pinghsun & Zhang, Yan, 2020. "Accounting conservatism and corporate social responsibility," Advances in accounting, Elsevier, vol. 51(C).
    4. Abbas Rezazadeh Karsalari & Mehdi Aghaee & Fatemeh Ghasemi, 2017. "The Effect of Mandatory Corporate Social Responsibility on Accounting Conservatism in Tehran Stock Exchange Corporations," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 7(3), pages 120-125, July.
    5. Huiping Zhu & Haifeng Gu & Habiba Halepoto, 2022. "Can Fulfillment of Social Responsibility Enable Enterprises to Innovate? The Role of Corporate Financialization and Agency Costs," Sustainability, MDPI, vol. 14(21), pages 1-22, October.
    6. Patrick Velte, 2021. "Environmental performance, carbon performance and earnings management: Empirical evidence for the European capital market," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(1), pages 42-53, January.
    7. Xiao Li & Gang Liu & Qinghua Fu & Abdul Aziz Abdul Rahman & Abdelrhman Meero & Muhammad Safdar Sial, 2022. "Does Corporate Social Responsibility Impact on Corporate Risk-Taking? Evidence from Emerging Economy," Sustainability, MDPI, vol. 14(1), pages 1-26, January.
    8. Mohammad Khalid Al Attar & Abdel Razaq F. Altal & Haitham Y. Ali, 2016. "Measuring the Conservatism Level in the Accounting Policies and Its Effect on the Financial Information Disclosure Quality in the Jordanian Commercial Banks," Journal of Management and Sustainability, Canadian Center of Science and Education, vol. 6(3), pages 91-105, September.
    9. Giovanna Gavana & Pietro Gottardo & Anna Maria Moisello, 2022. "Related Party Transactions and Earnings Management: The Moderating Effect of ESG Performance," Sustainability, MDPI, vol. 14(10), pages 1-21, May.
    10. Raquel Garde-Sanchez & María Victoria López-Pérez & Antonio M. López-Hernández, 2018. "Current Trends in Research on Social Responsibility in State-Owned Enterprises: A Review of the Literature from 2000 to 2017," Sustainability, MDPI, vol. 10(7), pages 1-21, July.
    11. Hickman, L. Emily & Iyer, Subramanian Rama & Jadiyappa, Nemiraja, 2021. "The effect of voluntary and mandatory corporate social responsibility on earnings management: Evidence from India and the 2% rule," Emerging Markets Review, Elsevier, vol. 46(C).
    12. Anagnostopoulou, Seraina C. & Tsekrekos, Andrianos E. & Voulgaris, Georgios, 2021. "Accounting conservatism and corporate social responsibility," The British Accounting Review, Elsevier, vol. 53(4).
    13. Maisuradze Davit & Narmania Giorgi & Lazishvili Magda & Tkeshelashvili Mariam & Shakiashvili Irakli, 2020. "Is Corporate Social Responsibility (CSR) a New Alternative to Governance Challenges of State-Owned Enterprises (SOEs)?," Central European Journal of Public Policy, Sciendo, vol. 14(2), pages 28-46, December.
    14. Pathak, Rajesh & Gupta, Ranjan Das, 2022. "Environmental, social and governance performance and earnings management – The moderating role of law code and creditor's rights," Finance Research Letters, Elsevier, vol. 47(PA).
    15. Krivogorsky, Victoria & Mintchik, Natalia & Alon, Anna, 2023. "Accounting research in former Soviet bloc countries: Past trends and current and future developments," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 50(C).

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