The Association between Corporate Social Responsibility (CSR) and Earnings Quality – Evidence from European Blue Chips
HHL Working Paper Series No. 112
43 Pages Posted: 6 Sep 2012 Last revised: 17 Feb 2014
Date Written: January 7, 2014
Based on the notion that the results of prior research are mixed, this study reinvestigates the association between corporate social responsibility and earnings quality. More precisely, we examine the association between corporate social responsibility and the degree of earnings management, the degree of accounting conservatism and the quality of accruals. We find that firms with high corporate social responsibility ratings are more likely to engage in earnings management, to report bad news less timely and to have lower quality accruals. In contrast to prior research, our sample is based on European firms applying IFRS. For this reason, we argue that there are country-specific characteristics which moderate the association between corporate social responsibility and earnings quality and provide additional analyses which support this notion. Our results indicate that the increasing trend to invest in and to report about corporate social responsibility is not necessarily accompanied by higher quality financial statements.
Keywords: Corporate Social Responsibility, Earnings Quality, Financial Reporting Quality, Business Ethics, Earnings Management, Accounting Conservatism, Accrual Quality
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