•  
  •  
 

JEL Classification System

M14, M41, M48

Abstract

In this study, we investigate the impact of corporate social responsibility (CSR) on earnings management through discretionary accruals and real-activities decisions, in light of the increasing attention and engagement of firms from different sectors. This study contemplates on non-financial Asian firms from controversial and non-controversial sectors with 889 and 3,017 firm-year observations from 2011 to 2017. The findings reveal that Asian firms likely use a mix of accrual-based earnings management (AEM) and real-activities earnings management (REM) as a strategy to manipulate reported earnings. In terms of sector classifications, managers from controversial sectors exhibit higher opportunistic behavior than managers from non-controversial sectors regarding accrual-based manipulation. We conjecture that CSR in controversial sectors is driven by a high demand for responsibility and actions based on its business operation, a motivation for managers to deceive stakeholders and behave opportunistically. In addition, we find that managers of non-controversial sectors are conservative in real-activities manipulations. However, CSR of firms from controversial sectors showed to have an insignificant effect on this manipulation strategy, consistent with managerial amorality towards real activities decision. Our findings contribute to the reconciliation of the impact of building corporate citizenship culture when providing credible financial reports. Lastly, the implications for sustainable business operation from the cognizance of controversies in managerial decisions are elaborated.

Download

Share

COinS