Corporate Social Responsibility and Earnings Management: Evidence from Asian Economies

Bert Scholtens*, Feng Ching Kang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

110 Citations (Scopus)

Abstract

We investigate how earnings management is associated with corporate social responsibility (CSR) and investor protection with 139 firms in ten Asian countries. In Asia, CSR is increasingly attracting attention but the legal system generally is perceived as being poor. We hypothesize that there is an inverse relationship between CSR and earnings management, as well as between investor protection and earnings management. Regarding earnings management, we investigate earnings smoothing and earnings aggressiveness. We find that Asian firms with relatively good CSR are engaged significantly less with earnings management. Investor protection also is negatively associated with earnings management. We find that this is very case sensitive and depends on the ways in which earnings management and investor protection are actually measured. In addition, we establish that CSR shows positive interaction with investor protection. We conclude that in Asian countries CSR moderates firms' earnings management and that this is conditioned by the legal system.

Original languageEnglish
Pages (from-to)95-112
Number of pages18
JournalCorporate Social Responsibility and Environmental Management
Volume20
Issue number2
DOIs
Publication statusPublished - 1 Mar 2013

Keywords

  • Asian firms
  • Corporate social responsibility (CSR)
  • Earnings management
  • Investor protection

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