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Can Corporate Social Responsibility Decrease the Negative Influence of Financial Distress on Accounting Quality?

Jun Hyeok Choi (), Saerona Kim (), Dong-Hoon Yang () and Kwanghee Cho ()
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Jun Hyeok Choi: Department of Accounting, Dongguk University, Seoul 04620, Korea
Saerona Kim: Department of Accounting, Gyeongsang National University, Jinju-si 52828, Korea
Dong-Hoon Yang: Department of Accounting, Dongguk University, Seoul 04620, Korea
Kwanghee Cho: Department of Accounting, Dongguk University, Seoul 04620, Korea

Sustainability, 2021, vol. 13, issue 19, 1-19

Abstract: This study aimed to test how corporate social responsibility (CSR) can affect the impact of corporate financial distress on earnings management. Based on the existing literature, distressed firms tend to hide their financial crises through earnings manipulation. However, as CSR can positively affect companies in terms of performance, risk reduction, and market response, the better a firm’s CSR is the less managers will attempt earnings management even if they experience temporary distress. Consistent with the literature, test results using Korean-listed companies show that distress increased earnings management, and we confirmed that CSR weakened the positive effect of distress on earnings management. After testing each of the CSR subcategories, significant results were found mainly on environmental performance, reflecting the globally increasing interest in environmental issues. This study contributes to the literature on distress and earnings management, which rarely considers CSR as a moderating factor.

Keywords: CSR; ESG; financial distress; financial constraint; accounting quality; accrual earnings management (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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