Corporate Social Responsibility, Earnings Management, and Firm Performance: Evidence from Panel VAR Estimation

42 Pages Posted: 16 Jan 2014 Last revised: 19 Aug 2014

See all articles by Mark C. Anderson

Mark C. Anderson

University of Calgary - Haskayne School of Business

Soonchul Hyun

University of North Carolina (UNC) at Greensboro

Hussein A. Warsame

University of Calgary

Date Written: November 8, 2013

Abstract

Previous literature investigates links between corporate social responsibility (CSR), earnings management (EM), and firm performance (FP) but has looked at pair-wise relations (CSR-EM, CSR-FP, and EM-FP) for one-way effects without considering endogeneity among the variables. We examine these relations recognizing endogeneity and possible two-way effects and also consider two additional factors, corporate governance (CG) and management compensation (MC) that may influence the interrelations between firms’ FP, EM and CSR. To examine the complex relationships among these endogenous variables (CSR, EM, PF, CG, and MC) under different eras in management oversight, we divide our complete sample period from 1992 to 2009 into a pre-SOX (Sarbanes-Oxley) period (from 1992 to 2001) and a post-SOX period (from 2002 to 2009), and innovatively employ a rigorous panel vector autoregressive (PVAR) approach. We find three main results: (1) CSR had a positive influence on EM in the pre-SOX period but CSR had no impact on EM post-Sox. (2) There is no relation between CSR and FP pre-SOX, but there are bi-directional relations between them during the post-SOX period: a positive influence of CSR on FP and a negative influence of FP on CSR. (3) FP positively affects EM in both pre- and post-SOX periods.

Keywords: CSR, Earnings Management, Firm Performance, SOX, PVAR

JEL Classification: G18, G30, G38, M41

Suggested Citation

Anderson, Mark C. and Hyun, Soonchul and Warsame, Hussein A., Corporate Social Responsibility, Earnings Management, and Firm Performance: Evidence from Panel VAR Estimation (November 8, 2013). 2014 Canadian Academic Accounting Association (CAAA) Annual Conference; AAA 2015 Management Accounting Section (MAS) Meeting. Available at SSRN: https://ssrn.com/abstract=2379826 or http://dx.doi.org/10.2139/ssrn.2379826

Mark C. Anderson

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403-220-3926 (Phone)

Soonchul Hyun (Contact Author)

University of North Carolina (UNC) at Greensboro ( email )

P.O.Box 26170
Greensboro, NC 27402
United States

Hussein A. Warsame

University of Calgary ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

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