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Corporate social responsibility disclosures and earnings quality: Are they a reflection of managers’ opportunistic behavior?

Muttakin,MB, Khan,A and Azim,MI 2015, Corporate social responsibility disclosures and earnings quality: Are they a reflection of managers’ opportunistic behavior?, Managerial Auditing Journal, vol. 30, no. 3, pp. 277-298, doi: 10.1108/MAJ-02-2014-0997.

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Title Corporate social responsibility disclosures and earnings quality: Are they a reflection of managers’ opportunistic behavior?
Author(s) Muttakin,MB
Khan,AORCID iD for Khan,A orcid.org/0000-0003-4984-8021
Azim,MI
Journal name Managerial Auditing Journal
Volume number 30
Issue number 3
Start page 277
End page 298
Publisher Emerald Group Publishing Ltd.
Publication date 2015-03
ISSN 0268-6902
Keyword(s) Corporate social responsibility
Discretionary accruals
Earnings quality
Emerging economy
Opportunistic behaviour
Summary Purpose – This paper aims to explore the relationship between corporate social responsibility (CSR) disclosures and earnings quality proxied by earnings accruals. Specifically, we examine whether CSR disclosures are context-specific, that is, whether companies dominated by powerful stakeholders are obliged to behave in a responsible manner to constrain earnings management, thereby reporting higher-quality earnings to investors. Design/methodology/approach – This paper explores the relationship between CSR disclosures and earnings quality proxied by earnings accruals. Specifically, we examine whether CSR disclosures are context-specific, that is, whether companies dominated by powerful stakeholders are obliged to behave in a responsible manner to constrain earnings management, thereby reporting higher-quality earnings to investors. Findings – Results show that managers in an emerging economy manage earnings when they provide more CSR disclosures. Such earnings management is achieved through income increasing discretionary accruals. Furthermore, companies from export-oriented industries dominated by powerful stakeholders (international buyers) disclosing more CSR activities, provide transparent financial reports through constraining earnings management. Originality/value – The findings of this study are significant for both investors and policymakers. Investors should not take for granted that firms engage in CSR activities, behave ethically and provide transparent financial reports. As we document that firms might manipulate earnings through discretionary accruals and provide less transparent financial reports to shareholders, the credibility of firms’ CSR policies should be assessed with caution. Policies directing at promoting socially responsible practices instead of motivating the desired behaviour, may provide managers with additional incentives to utilise CSR for opportunistic behaviour. Thus, policymakers need to be cautious about this opportunistic behaviour and enhance monitoring to enforce social compliance. Possibly, some guidelines can be introduced to confirm that CSR disclosures are based on actual practice and not just a “green wash” statement to deceive stakeholders.
Language eng
DOI 10.1108/MAJ-02-2014-0997
Field of Research 150106 Sustainability Accounting and Reporting
Socio Economic Objective 970115 Expanding Knowledge in Commerce
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2015, Emerald
Free to Read? Yes
Persistent URL http://hdl.handle.net/10536/DRO/DU:30072074

Document type: Journal Article
Collections: School of Accounting, Economics and Finance
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Every reasonable effort has been made to ensure that permission has been obtained for items included in DRO. If you believe that your rights have been infringed by this repository, please contact drosupport@deakin.edu.au.