Corporate Social Responsibility and the Misclassification of Income Statement Items during the Coronavirus Pandemic

Zakeya Sanad, Hidaya Al Lawati () and Abdalmuttaleb Al-Sartawi
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Zakeya Sanad: Accounting, Finance and Banking Department, Ahlia University, Manama P.O. Box 10878, Bahrain
Hidaya Al Lawati: Accounting Department, College of Economics and Political Science, Sultan Qaboos University, P.O. Box 50, Muscat 123, Oman
Abdalmuttaleb Al-Sartawi: Accounting, Finance and Banking Department, Ahlia University, Manama P.O. Box 10878, Bahrain

JRFM, 2024, vol. 17, issue 9, 1-18

Abstract: The purpose of this study was to examine the relationship between corporate social responsibility (CSR) and earnings management in Gulf Cooperation Council (GCC)-listed companies. It specifically addresses the question of whether companies that practice greater corporate social responsibility are less likely to engage in earnings management practices. The study sample consisted of 300 firms listed between 2015 and 2021 on GCC bourses (Saudi Arabia, United Arab Emirates, Bahrain, Qatar, Oman, and Kuwait). In this study, we developed multiple linear regression models and collected data from the Bloomberg database, Refinitiv, annual reports, official firms’ websites, and the GCC’s bourse websites for the period from 2015 to 2021. In the pre-pandemic period, firms that engaged in corporate social responsibility activities were more likely to have fewer classification-shifting practices. During the pandemic era, however, this relationship became significantly positive, suggesting that firms’ corporate social responsibility practices may be used to hide their opportunistic classification-shifting practices during difficult times, such as a pandemic. This paper presents a thorough investigation of how businesses may alter their behavior toward increasingly applied but understudied earnings management strategies and CSR practices during a difficult period such as a pandemic.

Keywords: classification shifting; corporate social responsibility; COVID-19; earnings management; Gulf Cooperation Council (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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