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Voluntary Audits of Nonfinancial Disclosure and Earnings Quality

Author

Listed:
  • Sunita S. Rao

    (School of Business, Washburn University, Topeka, KS 66621, USA)

  • Carlos Ernesto Zambrana Roman

    (Department of Economics, University of Kansas, Lawrence, KS 66045, USA)

  • Norma Juma

    (School of Business, Washburn University, Topeka, KS 66621, USA)

Abstract

We investigate the association between voluntary assurance of a firm’s corporate social responsibility (CSR) report and earnings management. A concern with CSR reports is they are used to promote a socially responsible image without a meaningful commitment to CSR activities, referred to as “greenwashing”. To credibly signal the CSR report is reliable, a firm can incur the additional costs to voluntarily obtain assurance. Our results show that strong corporate governance plays a crucial role in limiting earnings management. The most consistent improvements in earnings quality occur when firms combine strong governance with CSR assurance from a non-accounting provider (NonACCT). The combination of strong governance and NonACCT assurance appears to be mutually reinforcing, suggesting a symbolic legitimacy strategy that is also substantively effective.

Suggested Citation

  • Sunita S. Rao & Carlos Ernesto Zambrana Roman & Norma Juma, 2025. "Voluntary Audits of Nonfinancial Disclosure and Earnings Quality," JRFM, MDPI, vol. 18(5), pages 1-19, May.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:5:p:256-:d:1651300
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