Forcing responsibility? Examining earnings management induced by mandatory corporate social responsibility: evidence from India

Manish Bansal and Vivek Kumar

Review of Accounting and Finance, 2021, vol. 20, issue 2, 194-216

Abstract: Purpose - This study aims to investigate the impact of mandatory corporate social responsibility (CSR) spending legislation on the earnings management strategies of firms. Design/methodology/approach - The authors use panel data regression models to analyze the data for this study. This study covers the post-legislation period, which spans over five years from the financial year ending March 2015 to the financial year ending March 2019. Findings - The results show that firms manipulate accounting measures to avoid breaching the cut-off criteria for mandatory CSR. In particular, the results show that firms operating around the operating revenue threshold misclassify operating revenue as non-operating revenue. In contrast, firms operating around the net worth and net profit thresholds do downward real and accrual earnings management. These results are consistent with several robustness measures. Originality/value - To the best of the authors’ knowledge, this is the first study that examines the impact of mandatory CSR spending on earnings management.

Keywords: CSR; Corporate social responsibility; Earnings management; Mandatory CSR; Section 135 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:rafpps:raf-06-2020-0151

DOI: 10.1108/RAF-06-2020-0151

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