The association between Corporate Social Responsibility and Earnings Quality: Evidence from Extractive Industry
La asociación entre las Actividades de Responsabilidad Social Corporativa y la calidad de los ingresos: Evidencia de la industria extractiva
Abstract
Building on the ethical theory to solve the research questions, we examine the relationship between Corporate Social Responsibility Disclosure (CSRD) and Earnings Quality (EQ). Using 368 firm-year observations covering the 2010-2017 period. In so doing, we applied content analysis to assess the CSRD dimensions, and we applied discretionary accruals as a proxy of EQ activity. Based on panel data regression, we find a significant and negative relationship between CSRD and EQ in Mozambican extractive industry. Empirical evidence also shows that the influence of positive CSRD indicator (CSRD strengths scores) is much stronger than that negative CSRD indicator (CSRD concerns scores) in reducing earnings quality. These findings are consistent with the idea that the opportunistic managers use CSRD to reach their particular interest, suggesting that the managers are using CSRD as a strategic device to engage in earnings management (poorer earnings quality). The results are robust to alternative proxy measures of CSRD and earnings quality.
Downloads
-
Abstract1305
-
PDF1649
References
Alsaadi, A. A., Ebrahim, M. S. and Jaafar A. (2017). Corporate Social Responsibility, Shariah-Compliance, and Earnings Quality, *Journal of Financ. Serv. Res*, 51(2), 169-194
Barth, M. E, Landsman, W. R and Lang, M. H. (2008). International accounting standards and accounting quality. *Journal of Accounting Research,* 46(3), 467-498. https://doi.org/10.1111/j.1475-679X.2008.00287.x
Bozzolan, S., Fabrizi, M., Mallin, C. A., & Michelon G. (2015). Corporate Social Responsibility and Earnings Quality: International Evidence. *The International Journal of Accounting*, 5(4), 361-396. https://doi.org/10.1016/j.intacc.2015.10.003
Branco, M. C., & Rodrigues, L. L. (2006). Communication of Corporate Social Responsibility by Portuguese banks: A legitimacy theory perspective. *Corporate Communications: An International Journal,* 11(3), 232-248. https://dx.doi.org/10.1108/13563280610680821
Carroll, A. 1979. A three-dimensional conceptual model of corporate performance. The *Academy of Management Review* 4 (4), 497-505. https://doi.org/10.5465/amr.1979.4498296
Castelo, M., Lima, L. (2006). Corporate Social Responsibility and resource based perspectives. *Journal of Business Ethics*, 69(2), 111-132. https://link.springer.com/article/10.1007%2Fs10551-006-9071-z
Choi, B.B., Lee, D., Park, Y. (2013). Corporate Social Responsibility, corporate governance, and earnings quality: evidence from Korea. *Corporate Gov.: International Review,* 21(5), 447-467. https://doi.org/10.1111/corg.12033
Dechow, P. M., Sloan, R. G. and Sweeney, A. P. (1995). Detecting earnings management. *The Accounting Review,* 70(2), 193-225.http://www.jstor.org/stable/248303
Gil, E. G., Monzano, M. P. And Fernandez, J. H. (2016). Investigating the relationship between corporate social responsibility and earnings management: Evidence from Spain. *BRQ* *Business Research Quarterly*, 19 (4), 289-299. https://dx.doi.org/10.1016/j.brq.2016.02.002
Healy, P., & Wahlen, J. (1999). A review of the earnings management literature and its implications for standards setting. *Accounting Horizons*, 13(4), 365-383. https://doi.org/10.2308/acch.1999.13.4.365
Hoffman, W. M. (1986). What is necessary for corporate moral excellence? *Journal of Business Ethics,* 5(3), 233-242.E:RCSAC 3VHoffman, W. M. (1986). What is necessary for corporate moral excellence? Journal of Business Ethics, 5(3), 233-242
Hong, Y. and Andersen, M.L. (2011). The relationship between Corporate Social Responsibility and earnings management: an exploratory study. *Journal of Business Ethics,* 104(4), 461-471. https://doi.org/10.1007/s10551-011-0921-y
Jones, J. (1991). Earnings management during import relief investigations. *Journal of Accounting Research, 29*(2), 193-228.http://www.jstor.org/stable/2491047
Kim, Y., Park, M. S., and Wier, B. (2012). Is Earnings Quality Associated with Corporate Social Responsibility? *The Accounting Review, 87*(3), 761-796. https://doi.org/10.2308/accr-10209
Kothari, S. P., Leone, A. and Wasley, C. (2005). Performance matched discretionary accrual measures. *J Accounting and Economics*, 39(1), 163-197. https://dx.doi.org/10.1016/j.jacceco.2004.11.002
Langa, E. Massina, N. (2014). "Industria extractiva e desenvolvimento local: O papel da responsabilidade social empresarial." In: L. de Brito *et al*. (orgs.) *Desafios para Mocambique 2014. Maputo, IESE, 229‑245.*
Lev, B., Petrovits, C. and Radhakrishnan, S. (2010). Is doing good for you? Yes, charitable contributions enhance revenue growth. *Strategic Management Journal, 31*(2), 182-200. https://doi.org/10.1002/smj.810
Li, A. and Xia, X. (2018). Are Controlling Shareholders Influencing the Relationship Between CSR and Earnings Quality? Evidence from Chinese Listed Companies, *Emerging Markets Finance & Trade, 54(5), 1047-1062* https://doi.org/10.1080/1540496X.2018.1434070
Martinez-Ferrero, J., Garcia-Sanchez I. And Cuadrado Ballestros B. (2015). Effect of Financial Reporting Quality on Sustainability Information Disclosure. *Corporate Social responsibility and Environmental Management, 22 (1), 45-65.* https://onlinelibrary.wiley.com/doi/abs/10.1002/csr.1330
Martinez-Ferrero, J., Banerjee, S., and Garcia-Sanchez, M. I. (2016). Corporate Social Responsibility as a Strategic Shield against Costs of Earnings Management Practices. *Journal of Business Ethics*, 133(2), 305-324 https://doi.org/10.1007/s10551-014-2399-x).
Moser, D. V., & Martin, P. R. (2012). A broader perspective on corporate social responsibility research in accounting. *Accounting Review*, 87(3), 797-806. https://doi.org/10.2308/accr-10257
Muttakin, M. B., Khan, A., and Azim, M. I. (2015). "Corporate social responsibility disclosures and earnings quality: Are they a reflection of managers' opportunistic behavior?". *Managerial Auditing Journal*, 30(3), 277-298 https://doi.org/10.1108/MAJ-02-2014-0997).
Porter, M.; Kramer, M.R. (2006). Strategy and society: The link between competitive advantage and corporate social responsibility. *Harvard Business Review,* 84(12), 78-92 https://hbr.org/2006/12/strategy-and-society-the-link-between-competitive-advantage-and-corporate-social-responsibility
Prior, D., Surroca, J. and Tribo, J. (2008). Are socially responsible managers really ethical? Exploring the relationship between earnings management and corporate social responsibility. *Corporate Governance,* *16*(3), 160-177. https://doi.org/10.1111/j.1467-8683.2008.00678.x
Pyo G., & Lee, Y. (2013). The Association between Corporate Social Responsibility activities and Earnings Quality: Evidence from donations and voluntary issuance of CSR reports. *The Journal of Applied Business Research,* 29(3), 945-966.
Resolution No. 21/2014, May 16: "Política de Responsabilidad Social Corporativa para Indústria Extractiva e de Recursos Minerais. Boletim da República. Publicaçao Oficial da República de Moçambique de 16 de Maio de 2014."http://www.mireme.gov.mz/
Scholtens, B., & Kang, F. C. (2013). Corporate social responsibility and earnings management: Evidence from Asian economies. *Corporate Social Responsibility and Environmental Management,* 20(2), 95-112. https://doi.org/10.1111/j.1467-8683.2008.00678.x
Siueia, Tito Tomas & Wang, Jianling (2017). Loan Loss Provisions, income smooth, Signaling, Capital Management and Pro-Cyclicality: Empirical evidence from Mozambique's Commercial Banks. *International Journal of Economics and Finance*, 9(11), 48-63 https://doi.org/10.5539/ijef.v9n11p48).
Skinner, D. J. & Sloan, R. G. (2002). Earnings surprises, growth expectations, and stock returns or don't let an earnings torpedo sink your portfolio. *Review of Accounting Studies*, 7(2-3), 289-312. https://doi.org/10.1023/A:1020294523516
Timbate, L. and Park, C. K. (2018). CSR Performance, Financial Reporting, and Investors' Perception on Financial Reporting, *Sustainability*, 10(522), 2-16 https://doi.org/10.3390/su10020522).
Van Staden, C. J. & Hooks, J. (2007). A comprehensive comparison of corporate environmental reporting and responsiveness. *British Accounting Review*, 39(3), 197-210.
Yip, E., Staden, C. V. and Cahan S. (2011) Corporate Social Responsibility Reporting and Earnings Management: The Role of Political Costs. *Australasian Accounting Business and Finance*, 5(3), 4-23 http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1206&context=aabfj
Zang, A. (2012). Evidence on the trade-off between real activities manipulations and accrual-based earnings management. *The Accounting Review,* 87(2), 675-703. https://doi.org/10.2308/accr-10196)
The publications in this journal are subject to the following terms:
1. Ediciones de la Universidad de Murcia (EDITUM) and ASEPUC conserve the patrimonial rights (copyright) of the published manuscripts, and favour and allow their reuse under the licence of use indicated in point 2.
2. The manuscripts are published in the electronic edition of the journal under an Attribution-NonCommercial-NoDerivatives 4.0 International licence. It allows to copy, distribute and include the article in a collective work (for example, an anthology), as long as there is no commercial purpose, the article is not altered or modified and the original work is properly cited. This journal is free of charge for the Open Access publication. ASEPUC and EDITUM finance the productiona and publication costs of the manuscripts.
3. Conditions for self-archiving. Authors are permitted and encouraged to electronically disseminate the published version of their works, as it favors their circulation and dissemination and thus a possible increase in their citation and reach among the academic community.

