Are Socially Responsible Managers Really Ethical? Exploring the Relationship between Earnings Management and Corporate Social Responsibility

18 Pages Posted: 19 Aug 2008

See all articles by Diego Prior Jiménez

Diego Prior Jiménez

Universitat Autonoma de Barcelona

Jordi Surroca

Universidad Carlos III de Madrid - Department of Business Administration

Josep A. Tribo

Stevens Institute of Technology

Abstract

This study offers insights for policy makers and managers interested in enhancing CSR. For managers, our findings suggest that projecting a socially-friendly image in order to disguise earnings management cannot be sustained over time due to the detrimental effect on financial performance. In addition, this study provides a warning signal to policy makers that certain practices geared toward raising a firm's CSR may simply be a mechanism for hindering other devious practices. This study draws on a generalized agency theory where managers are seen as the agents of all stakeholders and the earnings management literature to highlight that CSR can be used to garner support from stakeholders and, therefore, provides an opportunity for entrenchment to those managers that manipulate earnings. As such, it suggests new avenues of research for both the corporate governance literature, as well as for the stakeholder perspective. Using archival data from a multi-national panel sample of 593 firms from 26 countries between 2002 and 2004, we find a positive impact of earnings management practices on CSR; this relationship holds for different robustness checks. Also, we demonstrate that the combination of earnings management and CSR has a negative impact on financial performance. This paper investigates the connection between earnings management and corporate social responsibility (CSR). We argue that earnings management practices damage the collective interests of stakeholders; hence, managers who manipulate earnings can deal with stakeholder activism and vigilance by resorting to CSR practices.

Suggested Citation

Prior Jiménez, Diego and Surroca, Jordi and Tribo Gine, Josep Antonio, Are Socially Responsible Managers Really Ethical? Exploring the Relationship between Earnings Management and Corporate Social Responsibility. Corporate Governance: An International Review, Vol. 16, Issue 3, pp. 160-177, May 2008, Available at SSRN: https://ssrn.com/abstract=1235540 or http://dx.doi.org/10.1111/j.1467-8683.2008.00678.x

Diego Prior Jiménez

Universitat Autonoma de Barcelona ( email )

Campus Bellaterra
Barcelona, 08193
Spain
+34935811539 (Phone)
+34935812555 (Fax)

HOME PAGE: http://webs2002.uab.es/dprior/

Jordi Surroca

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

HOME PAGE: http://www.uc3m.es/uc3m/dpto/EMP/profesor/ijordi.htm

Josep Antonio Tribo Gine

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States
9292708869 (Phone)
07030 (Fax)

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