Unraveling the linkages between Shariah-Compliant stocks, corporate social responsibility, and earnings management: an empirical analysis

The purpose of this research is to determine the impact of CSR on earnings management practices in Shariah-compliant firms. The analysis covered eight years, from 2016 to 2023, and involved BSE Shariah Index firms. To measure the earnings management practices of Shariah-compliant organizations the study used the Modified Jones model. The study’s results indicate that a company’s CSR performance could exert an impact on earnings management choices in Shariah-compliant companies and Shariah principles acting as an extra constraint that discourages earnings manipulation. Firms that have a strong commitment to CSR within a framework that adheres to Shariah principles show a negative link with earnings manipulation, thus supporting the concept of ethical finance in promoting openness in financial dealings. These findings make a significant contribution to existing research by demonstrating the potential of Shariah principles to enhance corporate governance and promote more responsible financial reporting practices. Regulatory authorities and lawmakers may look into adopting ethical investment guidelines, including Shariah compliance, to help prevent corporate misconduct and increase financial reliability.