Corporate social responsibility, earnings management and firm performance: evidence from panel VAR estimation

Mark Anderson (), Soonchul Hyun () and Hussein Warsame ()
Additional contact information
Mark Anderson: University of Calgary
Soonchul Hyun: University of North Carolina at Greensboro
Hussein Warsame: University of Calgary

Review of Quantitative Finance and Accounting, 2024, vol. 62, issue 1, No 12, 364 pages

Abstract: Abstract Research that relates corporate social responsibility (CSR) to earnings management (EM) interprets directional relations between CSR and EM as indicators of opportunistic or ethical behavior by managers. On the one hand, EM leads to higher levels of CSR by opportunistic managers seeking reputational benefits from CSR. On the other hand, CSR leads to lower levels of EM by managers whose engagement in CSR reflects their ethical values. The attribution of opportunistic and ethical behaviors to managers in a firm setting is incomplete without also considering how EM and CSR relate to what firms strive to do as economic entities – create value. Therefore, we introduce financial performance (represented by Tobin’s Q) as an endogenous variable that influences managers’ engagement in CSR and EM. We estimate a panel vector auto-regression (PVAR) model to evaluate the complex directional relations between CSR, EM and Q. We find that EM positively affects CSR, consistent with reputation-building, but we find no directional relation from CSR to EM. We find that firm performance (Q) positively affects EM, suggesting that EM may be economically motivated, and that CSR positively affects Q, consistent with economic motives driving engagement in CSR. Our analysis addresses endogeneity concerns and provides a more complete basis for ascribing managers’ decisions about CSR and EM to economic and behavioral motives.

Keywords: Corporate social responsibility; Earnings management; Financial performance; Panel vector autoregression (search for similar items in EconPapers)
JEL-codes: M14 M41 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s11156-023-01203-x Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:62:y:2024:i:1:d:10.1007_s11156-023-01203-x

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2

DOI: 10.1007/s11156-023-01203-x

Access Statistics for this article

Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee

More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().