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Is Earnings Quality Associated with Corporate Social Responsibility? Evidence from the Korean Market

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  • Bohyun Yoon

    (Division of Economics and Information Statistics, Kangwon National University, Chuncheon 24341, Korea)

  • Byul Kim

    (College of Economics and Finance, Hanyang University, Seoul 04763, Korea)

  • Jeong Hwan Lee

    (College of Economics and Finance, Hanyang University, Seoul 04763, Korea)

Abstract

Socially responsible firms are believed to behave in a responsible manner to restrict earnings management and thus deliver more reliable and transparent financial information to investors. We test this hypothesis by predicting a higher quality of financial reporting for socially responsible firms in the Korean market. The entire sample analysis provides evidence for the hypothesis in the use of discretionary accruals as proxy variables for the quality of financial reporting. However, our sub-sample analysis indicates that such weak support is driven by a group of environmentally sensitive firms and the affiliates of large family-owned conglomerates, or chaebol . Socially responsible firms are less likely to be involved with earnings management in the group of non-environmentally sensitive industries and non- chaebol affiliates. These firms provide a better quality of financial reporting in terms of both the use of discretionary accruals and real activity manipulations. In line with recent studies, our findings suggest that ethical concerns in producing high-quality financial reports rely significantly on firm characteristics.

Suggested Citation

  • Bohyun Yoon & Byul Kim & Jeong Hwan Lee, 2019. "Is Earnings Quality Associated with Corporate Social Responsibility? Evidence from the Korean Market," Sustainability, MDPI, vol. 11(15), pages 1-20, July.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:15:p:4116-:d:253115
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    1. Francesco Grimaldi & Alessandra Caragnano & Marianna Zito & Massimo Mariani, 2020. "Sustainability Engagement and Earnings Management: The Italian Context," Sustainability, MDPI, vol. 12(12), pages 1-16, June.
    2. Joonhyun Kim & Yunkyeong Lee, 2023. "Association between Earnings Announcement Behaviors and ESG Performances," Sustainability, MDPI, vol. 15(9), pages 1-16, May.
    3. 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.
    4. 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.

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