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Voluntary corporate social responsibility reporting and financial statement auditing in China

Peter Carey, Li Liu and Wen Qu

Journal of Contemporary Accounting and Economics, 2017, vol. 13, issue 3, 244-262

Abstract: This study finds a positive association between voluntary corporate social responsibility (CSR) reporting and audit fees in China. In contrast to prior research from the US, CSR reporting in China is associated with greater earnings management. Results suggest that Chinese firms use CSR reporting as a strategic device for window dressing, and that auditors charge higher fees in response to heightened audit risk and greater audit effort. Further, the positive effects of CSR reporting on audit fees and earnings management are more significant for non-state-owned enterprises (non-SOEs) than for state-owned enterprises, which suggests that non-SOEs have not fully embraced the principles of CSR and essentially use CSR reporting to create the appearance of legitimacy. In additional tests, we find that non-SOEs with more highly rated CSR performance or longer CSR reports are associated with lower audit fees and less earnings management.

Keywords: Corporate social responsibility; Audit fees; Earnings quality; CSR disclosure; Audit risk; Window dressing (search for similar items in EconPapers)
JEL-codes: D21 D8 M42 O1 (search for similar items in EconPapers)
Date: 2017
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Journal of Contemporary Accounting and Economics is currently edited by Agnes C.S. Cheng, P. Clarkson, F.A. Gul, Zoltan Matolcsy, Dan Simunic and Ben Srinidhi

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