Is Earnings Quality Associated with Corporate Social Responsibility? Evidence from the Korean Market

Bohyun Yoon, Byul Kim and Jeong Hwan Lee
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Bohyun Yoon: Division of Economics and Information Statistics, Kangwon National University, Chuncheon 24341, Korea
Byul Kim: College of Economics and Finance, Hanyang University, Seoul 04763, Korea
Jeong Hwan Lee: College of Economics and Finance, Hanyang University, Seoul 04763, Korea

Sustainability, 2019, vol. 11, issue 15, 1-20

Abstract: Socially responsible firms are believed to behave in a responsible manner to restrict earnings management and thus deliver more reliable and transparent financial information to investors. We test this hypothesis by predicting a higher quality of financial reporting for socially responsible firms in the Korean market. The entire sample analysis provides evidence for the hypothesis in the use of discretionary accruals as proxy variables for the quality of financial reporting. However, our sub-sample analysis indicates that such weak support is driven by a group of environmentally sensitive firms and the affiliates of large family-owned conglomerates, or chaebol . Socially responsible firms are less likely to be involved with earnings management in the group of non-environmentally sensitive industries and non- chaebol affiliates. These firms provide a better quality of financial reporting in terms of both the use of discretionary accruals and real activity manipulations. In line with recent studies, our findings suggest that ethical concerns in producing high-quality financial reports rely significantly on firm characteristics.

Keywords: chaebol; corporate social responsibility; earnings management; ESG score; environmentally sensitive industries; Korea (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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