Corporate Social Responsibility and Financial Fraud: The Moderating Effects of Governance and Religiosity

Xing Li (), Jeong-Bon Kim (), Haibin Wu () and Yangxin Yu ()
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Xing Li: Xi’an Jiaotong University
Jeong-Bon Kim: City University of Hong Kong
Haibin Wu: City University of Hong Kong
Yangxin Yu: City University of Hong Kong

Journal of Business Ethics, 2021, vol. 170, issue 3, No 8, 557-576

Abstract: Abstract This study investigates how managers in firms that have committed fraud strategically use socially responsible activities in coordination with their fraudulent financial reporting practices. Using propensity score matching to select control firms that have a similar probability of fraud in the pre-fraud benchmark period, we find that the corporate social responsibility (CSR) performance of fraudulent firms in the fraud-committing period is significantly higher compared with the CSR performance of non-fraudulent control firms during this period, and compared with that during their own pre-fraud benchmark periods. This higher CSR performance by fraudulent firms is achieved by means of investing in both stakeholder and third-party CSR categories and by improving in CSR strengths. Furthermore, the increase in CSR performance is more pronounced for fraudulent firms with a weak governance environment, and for firms located in high-religiosity states. Overall, our findings suggest that fraudulent firms strategically adjust their CSR performance to coordinate with their fraudulent financial activities.

Keywords: Corporate social responsibility; Financial fraud; Corporate image and reputation; Corporate governance; Religiosity (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (11)

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DOI: 10.1007/s10551-019-04378-3

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