Title: Are socially responsible firms less engaged in earnings management? Evidence from ADX listed companies

Authors: Mohamed Chakib Kolsi; Osama F. Attayah

Addresses: Department of Accounting, Emirates College of Technology, P.O. Box 41009, Abu Dhabi, UAE; Faculty of Economic Sciences and Management, University of Sfax, B.P. 3018, Sfax, Tunisia ' Department of Accounting, Emirates College of Technology, P.O. Box 41009, Abu Dhabi, UAE

Abstract: Corporate social responsibility (CSR) disclosures have gained great attention both in media and academic community. In this paper, we check if socially responsible firms adopt transparent financial reporting strategy, or opportunistically manipulate accounting figures. Using a sample of 34 listed companies during five years (2010-2014), our results show a positive relationship between abnormal accruals and the level of CSR disclosures thereby enhancing the opportunistic hypothesis of earnings management but not the transparent financial reporting hypothesis. By contrast, we find no relationship between CSR disclosures and the three real manipulation proxies: abnormal operating cash-flows, abnormal production costs and abnormal discretionary expenses. Moreover, there is a positive relationship between CSR disclosures and the extent of income smoothing consistent with the opportunistic perspective of earnings management. Overall, our study shows that opportunistic and transparent financial reporting perspectives are not mutually exclusive since earnings management practice conducted by socially responsible firms may be context-oriented.

Keywords: corporate social responsibility disclosures; discretionary accruals; real manipulations; income smoothing; opportunistic vs. transparent financial reporting.

DOI: 10.1504/IJBIR.2018.096373

International Journal of Business Innovation and Research, 2018 Vol.17 No.4, pp.536 - 560

Received: 19 May 2017
Accepted: 19 Sep 2017

Published online: 27 Nov 2018 *

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