Do Bankers Use Managerial Discretion with Regard to CSR and Earnings Management to Rebuild Their Reputation in the Aftermath of the Financial Crisis?

Ada Sneekes, Georgios Georgakopoulos, Alexandros Sikalidis and Maria Rodosthenous
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Ada Sneekes: University of Amsterdam, Amsterdam, Netherlands
Georgios Georgakopoulos: Department of Accounting and Finance, University of Strathclyde, Glasgow, UK
Alexandros Sikalidis: University of Amsterdam, Amsterdam, Netherlands
Maria Rodosthenous: Piraeus University of Applied Sciences (TEI of Piraeus), Athens, Greece

International Journal of Corporate Finance and Accounting (IJCFA), 2016, vol. 3, issue 2, 14-41

Abstract: In this paper the authors examine the relationship between CSR (Corporate Social Responsibility) performance and earning management in the banking industry from 2008 to 2012 having a specific focus on managerial behaviour and its impact on banks' reputation. They propose that when managers opportunistically engage in CSR, they will also engage in opportunistic earnings management but if they engage in CSR practices because it is the socially ‘right thing to do' then earnings will better reflect banks' true economic performance. Finally, they expect that when bank managers recognize the importance of societal trust they use their discretion to regain trust and to rebuild reputation. Their results show that in general, banks that perform high on CSR indicators behave more transparently with regard to the presentation of earnings. Banks that engage in CSR activities to improve their reputation, use managerial discretion to show socially desirable earnings numbers. For banks that value their reputation, pursuing societal trust is more important than the fulfilling of self-interest.

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:igg:jcfa00:v:3:y:2016:i:2:p:14-41

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