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

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.

Analysis on Sustainability Reporting and Earnings Management Practices. Evidence from an Emerging Economy

“…Thus overall, considering the above mentioned results, having two out of three validated hypotheses, it can be concluded that the adoption of the European Directive 2014/95/EU related to mandatory presentation of non-financial information led to a decrease in the use of earnings management practices by companies listed on the Bucharest Stock Exchange in the post-EUD period, 2017-2019, based on empirical evidence of exhibiting less income smoothing, in comparison to the pre-EUD period, 2015-2016. These findings are consistent with prior studies showing a negative association between nonfinancial reporting and earnings management [2], including in emerging economies [1,8].…”

“…In addition, academic literature indicates that emerging markets are to some extent neglected, arguing that there is a necessity for this gap to be addressed [8]. Other research findings referring to developed countries cannot be extrapolated to developing contexts, considering that stakeholders in these settings affect differently the decisionmaking process related to release of non-financial reports [9].…”

CSR Disclosures: Role and Relationship to Accounting Conservatism in Improving Earnings of Quality

“…and tends to have good earnings quality and provide longterm benefits (Calegari et al, 2010;Hong and Andersen. , 2011;Kim et al, 2012;Litt et al, 2014;Scholtens and Kang, 2013;Azis and Faisol, 2018).…”

“…Several studies state that companies that are oriented towards social responsibility tend to have good earnings quality and provide long-term benefits (Calegari et al, 2010;Hong and Andersen, 2011;Kim et al, 2012;Scholtens and Kang, 2013;Litt et al, 2014). The indication that CSR disclosure is considered capable of changing stakeholders' views, especially in improving reputation and improving the quality of reports, indicates the possibility that CSR disclosure also has an indirect effect on earnings quality through accounting conservatism.…”

A Triple of Corporate Governance, Social Responsibility and Earnings Management

“…Consequently, the connection of corporate governance to socially responsible actions has been thoroughly investigated in those studies. In addition, the relationship between corporate social responsibility and the management of earnings has also been quite frequently examined in different prior research projects (Gras-Gil et al, 2016;Chih, Shen, & Kang, 2008;Yoon, Kim, Lee, 2019;Suteja, Gunardi, & Mirawati, 2016;Sial, Chunmei, Khan, & Nguyen, 2018). Some of them tried to evaluate the impact of socially responsible activities on manipulating the earnings in accounting reports (Gras-Gil et al, 2016;Gavana et al, 2017;Chih et al, 2008;Yoon et al, 2019).…”