EXAMINING THE NEXUS BETWEEN CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND EARNINGS MANAGEMENT: EVIDENCE FROM THE STATE-OWNED ENTERPRISES OF BANGLADESH

Raihan Sobhan; Touhida Sharmin

doi:10.17261/Pressacademia.2024.1899

EXAMINING THE NEXUS BETWEEN CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND EARNINGS MANAGEMENT: EVIDENCE FROM THE STATE-OWNED ENTERPRISES OF BANGLADESH

Abstract

Purpose- The purpose of the study is to examine the association between corporate social responsibility (CSR) disclosure and the practice of earnings management in the listed state-owned enterprises (SOEs) of Bangladesh. Methodology- All the listed SOEs (17 firms) of Dhaka Stock Exchange (DSE) for the years 2017-2022 were considered in the study, resulting in observations of 102 firm-years. Content analysis was used to assess the level of CSR disclosure in the annual reports. For measuring earnings management, Beneish M-score model was used as the proxy variable. To investigate the association between CSR disclosure and earnings management, multivariate regression analysis was conducted using pooled OLS model, random effects model and lag model. Findings- The regression outcomes of the study found a positive and significant association between CSR disclosure and earnings management. This study shows how managers can use CSR disclosures as a competitive advantage by manipulating earnings while also fostering positive relationships with stakeholders. Conclusion- Investors and governments alike are increasingly demanding ethical business practices and full disclosure from corporations. The study concludes that managers' opportunistic behavior is a primary motivation for using CSRD to cover their tracks. This study will provide valuable insights to the policy-makers, regulators, investors and other stakeholders on how CSR reporting can be used as a medium to hide management’s manipulative practices and, why it is important to implement a more comprehensive guideline on CSR reporting and effective governance to eliminate such practices.

Keywords

References

Akra, R. M., & Chaya, J. K. (2020). Testing the effectiveness of Altman and Beneish models in detecting financial fraud and financial manipulation: Case study Kuwaiti stock market. International Journal of Business and Management, 15(10), 70–81. https://doi.org/10.5539/ijbm.v15n10p70
Almahrog, Y., Ali Aribi, Z. & Arun, T. (2018). Earnings management and corporate social responsibility: UK evidence. Journal of Financial Reporting and Accounting, 16(2), 311-332. https://doi.org/10.1108/JFRA-11-2016-0092
Alsaadi, A., M. S. Ebrahim, & A. Jaafar. (2017). Corporate Social Responsibility, Shariah- Compliance, and Earnings Quality. Journal of Financial Services Research, 51(2), 169-194. https://doi.org/10.1007/s10693-016-0263-0
Arman, M., & Sharmin, S. (2019). Likelihood of a company’s manipulation of its financial statement: An empirical analysis using Beneish M-score model. International Conference on Management and Information Systems September (Vol. 29, pp. 30).
Becker, C. L., DeFond, M. L., Jiambalvo, J., & Subramanyam, K. (1998). The effect of audit quality on earnings management. Contemporary Accounting Research, 15(1), 1–24. https://doi.org/10.1111/j.1911-3846.1998.tb00547.x
Beneish, M. (1999). The detection of earning manipulation. Financial Analyst Journal, 55(5), 24–36. https://doi.org/10.2469/faj.v55.n5.2296
Brown, N. & Deegan, C. (1998). The public disclosure of environmental performance information: a dual test of media agenda setting theory and legitimacy theory. Accounting and Business Research, 2(1), 21-41. https://doi.org/10.1080/00014788.1998.9729564
Carroll, A. B. (1999). Corporate social responsibility evolution of a definitional construct. Business & Society, 38(3), 268–295. https://doi.org/10.1177/000765039903800303

Chih, H., Shen, C., & Kang, F. (2008). Corporate social responsibility, investor protection, and earnings management: Some international evidence. Journal of Business Ethics, 79(1-2), 179–198. https://doi.org/10.1007/s10551-007-9383-7
Cho, E., & S. Chun. 2016. Corporate social responsibility, real activities earnings management, and corporate governance: evidence from Korea. Asia-Pacific Journal of Accounting & Economics, 23(4), 400-431. https://doi.org/10.1080/16081625.2015.1047005
Choi, B. B., D. Lee, & Y. Park. (2013). Corporate Social Responsibility, Corporate Governance and Earnings Quality: Evidence from Korea. Corporate Governance: An International Review. 21(5), 447-467. https://doi.org/10.1111/corg.12033
Choi, T.H., & Pae, J. (2011). Business ethics and financial reporting quality: evidence from Korea. Journal of Business Ethics, 103(3), 403–427. http://dx.doi.org/10.1007/s10551-011-0871-4
Dechow, P. M., & Skinner, D. J. (2000). Earnings management: Reconciling the views of accounting academics, practitioners, and regulators. Accounting Horizons, 14(2), 235–250. https://doi.org/10.2308/acch.2000.14.2.235
Dechow, P., Sloan, R., & Sweeney, A. (1995). Detecting earnings management. Accounting Review, 70(2), 193–225.
Ding, Y., Zhang, H., & Zhang, J. (2007). Private vs. state ownership and earnings management: evidence from Chinese listed companies. Corporate governance: an international review, 15(2), 223–38. https://doi.org/10.1111/j.1467-8683.2007.00556.x
Elsayed, M.O. and Hoque, Z. (2010). Perceived international environmental factors and corporate voluntary disclosure practices: An empirical study. The British Accounting Review, 42(1), 17–35. Available at: https://doi.org/10.1016/J.BAR.2010.01.001
Farooque, O.A., Zijl, T.V., Dunstan, K. & Karim, A.K.M.W. (2007). Corporate governance in Bangladesh: link between ownership concentration and financial performance. Corporate Governance: An International Review, 15(6), 1453-1468. https://doi.org/10.1111/j.1467-8683.2007.00657.x
Fayad, A.A.S., Binti Mohd Ariff, A.H. & Ooi, S.C. (2022). Dose board characteristics influence integrated reporting quality? Empirical evidence from an emerging market. Cogent Economics & Finance, 10(1). Available at: https://doi.org/10.1080/23322039.2022.2140907
García-Sánchez, I.-M., & E. García-Meca. (2017). CSR Engagement and Earnings Quality in Banks. The Moderating Role of Institutional Factors. Corporate Social Responsibility and Environmental Management, 24(2), 145-158. https://doi.org/10.1002/csr.1405
Gargouri, R. M., C. Francoeur, & R. Shabou. (2010). The Relationship between Corporate Social Performance and Earnings Management. Canadian Journal of Administrative Sciences, 27(4), 320-334. https://doi.org/10.1002/cjas.178
Goel, A.M. & Thakor, A.V. (2003). Why do firms smooth earnings? The Journal of Business, 76(1), pp. 151-192. https://doi.org/10.1086/344117
Gujarati, D. N. (2003). Basic Econometrics (4th ed.). New York: McGraw-HiII.
Habbash, M. & Haddad, L. (2020). The impact of corporate social responsibility on earnings management practices: evidence from Saudi Arabia. Social Responsibility Journal, 16(8), 1073-1085. https://doi.org/10.1108/SRJ-09-2018-0232
Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365–383. https://doi.org/10.2308/acch.1999.13.4.365
Hoang, T. C., Abeysekera, I. A., & Ma, S. (2014). State ownership and earnings management: Empirical evidence from Vietnamese listed firms. Proceedings of the 1st International Conference on Finance and Economics, Ho Chi Minh City, Việt Nam, 2–3 June.
Hong, Y. & Andersen, M.L. (2011). The relationship between corporate social responsibility and earnings management: an explanatory study. Journal of Business Ethics, 104, 461–471. https://doi.org/10.1007/s10551-011-0921-y
Jensen, M.C., & Meckling, W.H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X
Kamal, M. E. M., Salleh, M. F. M., & Ahmad, A. (2016). Detecting financial statement fraud by Malaysian public listed companies: The reliability of the Beneish M-Score model. Jurnal Pengurusan, 46, 23–32.
Kim, Y., Park, M. S., & Wier, B. (2012). Is earnings quality associated with corporate social responsibility? The Accounting Review, 87(3), 761–796. http://dx.doi.org/10.2308/accr-10209
Kowalski, P., Büge, M., Egeland, M., & Sztajerowska, M. (2013). State-Owned Enterprises: Trade Effects and Policy Implications. OECD Trade Policy Papers n. 147, Paris: OECD Publishing.
Kumala, R. & Siregar, S.V. (2021). Corporate social responsibility, family ownership and earnings management: the case of Indonesia. Social Responsibility Journal, 17(1), 69-86. https://doi.org/10.1108/SRJ-09-2016-0156
Laksmana, I. & Yang, Y. (2009). Corporate citizenship and earnings attributes. Advances in Accounting, 25(1), 40-48. https://doi.org/10.1016/j.adiac.2009.02.001
Lee, B. B., & Choi, B. (2002). Company size, auditor type, and earnings management. Journal of Forensic Accounting, 3, 27–50.
Mamo, J., & Shehu, I. (2017). An estimating model for accounting manipulation phenomena. Case of Albania. Interdisciplinary Journal of Research and Development, 4(2), 130–44.
Moratis, L., & van Egmond, M. (2018). Concealing social responsibility? Investigating the relationship between CSR, earnings management and the effect of industry through quantitative analysis. International Journal of Corporate Social Responsibility, 3(8). https://doi.org/10.1186/s40991-018-0030-7
Muttakin, M. B., A. Khan, & M. I. Azim. (2015). Corporate social responsibility disclosures and earnings quality: Are they a reflection of managers’ opportunistic behavior? Managerial Auditing Journal, 30(3), 277-298. https://doi.org/10.1108/MAJ-02-2014-0997
OECD, (2014). The size and sectoral distribution of SOEs in OECD and partner countries.
Omran, M. et al. (2021). Integrated reporting and board characteristics: evidence from top Australian listed companies. Journal of Applied Accounting Research, 22(4), 732–758. Available at: https://doi.org/10.1108/JAAR-04-2020-0077/FULL/XML
Özcan, A. (2018). The use of Beneish model in forensic accounting: Evidence from Turkey. Journal of Applied Economics and Business Research, 8(1), 57–67.
Prior, D., Surroca, J., & Tribó, J. A. (2008). Are socially responsible managers really ethical? Exploring the relationship between earnings management and corporate social responsibility. Corporate Governance: An International Review, 16(3), 160–177. https://doi.org/10.1111/j.1467-8683.2008.00678.x
Pyo, G., & Lee, H.-Y. (2013). The Association Between Corporate Social Responsibility Activities and Earnings Quality: Evidence from Donations and Voluntary Issuance Of CSR Reports. Journal of Applied Business Research (JABR), 29(3), 945–962. https://doi.org/10.19030/jabr.v29i3.7793
Qaderi, S.A. et al. (2022). Board Characteristics and Integrated Reporting Strategy: Does Sustainability Committee Matter? Sustainability, 14(10), 6092. https://doi.org/10.3390/SU14106092
Repousis, S. (2016). Using Beneish model to detect corporate financial statement fraud in Greece. Journal of Financial Crime, 23(4), 1063–1073. https://doi.org/10.1108/JFC-11-2014-0055
Richardson, S. A., Tuna, A., & Wu, M. (2002). Predicting earnings management: The case of earnings restatements. In Min, predicting earnings management: the case of earnings restatements (October 2002).
Salewski, M., & Zülch, H. (2014). The association between corporate social responsibility and earnings quality – Evidence from European blue chips. Leipzig: HHL Working Paper Series No. 112, HHL.
Scholtens, B. & Kang, F. (2013). Corporate social responsibility and earnings management: evidence from Asian economics. Corporate Social Responsibility and Environmental Management, 20(2), 95-112. https://doi.org/10.1002/csr.1286
Scholtens, B. & Kang, F.C. (2013). Corporate social responsibility and earnings management: evidence from Asian economies. Corporate Social Responsibility and Environmental Management, 20(2), 95-112. https://doi.org/10.1002/csr.1286
Sun, N., Salama, A., Hussainey, K., & Habbash, M. (2010). Corporate environmental disclosure, corporate governance and earnings management. Managerial Auditing Journal, 25(7), 679–700. https://doi.org/10.1108/02686901011061351
Suteja, J., Gunardi, A., & Mirawati, A. (2016). Moderating effect of earnings management on the relationship between corporate social responsibility disclosure and profitability of banks in Indonesia. International Journal of Economics and Financial Issues, 6(4), 1360-1365.
Sweeney, A. P. (1994). Debt-covenant violations and managers’ accounting responses. Journal of Accounting and Economics, 17(3), 281–308. https://doi.org/10.1016/0165-4101(94)90030-2
Uyagu, B. & Dabor, A.O. (2017). Earnings management and corporate social responsibility, Romanian Economic Journal, 20(65), 70-87
Velayutham, E. (2018). Sustainability disclosure and earnings management. In Boubaker, S., Cumming, D., & Nguyen, D. K. (Eds.), Research handbook of finance and sustainability. Cheltenham, the UK: Edward Elgar Publishing.
Wang, l., & Yung, K. (2011). Do state enterprises manage earnings more than privately owned firms? The case of China. Journal of business finance & accounting, 38(7-8), 794-812. https://doi.org/10.1111/j.1468-5957.2011.02254.x
Yip, E., Staden, C.V. & Cahan, S. (2011). Corporate social responsibility reporting and earnings management: the role of political costs. Australasian Accounting Business and Finance, 5(3), 17-33.
Yunietha, & Palupi, A. 2017. Pengaruh Corporate Governance dan Faktor LainnyaTerhadap Manajemen Laba Perusahaan Publik Non Keuangan. Jurnal Bisnis DanAkuntansi, 19(4), 292–303. http://jurnaltsm.id/index.php/JBA

Details

Primary Language

English

Subjects

Finance, Business Administration

Journal Section

Research Article

Authors

Raihan Sobhan ^* This is me
0000-0003-2015-8035
Bangladesh

Touhida Sharmin This is me
0009-0003-3343-6273
Bangladesh

Publication Date

June 3, 2024

Submission Date

January 26, 2024

Acceptance Date

May 24, 2024

Published in Issue

Year 2024 Volume: 13 Number: 1

DOI

https://doi.org/10.17261/Pressacademia.2024.1899

IZ

https://izlik.org/JA67HC56EN

Cite

RIS / Bibtex

APA

Sobhan, R., & Sharmin, T. (2024). EXAMINING THE NEXUS BETWEEN CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND EARNINGS MANAGEMENT: EVIDENCE FROM THE STATE-OWNED ENTERPRISES OF BANGLADESH. Journal of Business Economics and Finance, 13(1), 24-36. https://doi.org/10.17261/Pressacademia.2024.1899

AMA

1.Sobhan R, Sharmin T. EXAMINING THE NEXUS BETWEEN CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND EARNINGS MANAGEMENT: EVIDENCE FROM THE STATE-OWNED ENTERPRISES OF BANGLADESH. JBEF. 2024;13(1):24-36. doi:10.17261/Pressacademia.2024.1899

Chicago

Sobhan, Raihan, and Touhida Sharmin. 2024. “EXAMINING THE NEXUS BETWEEN CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND EARNINGS MANAGEMENT: EVIDENCE FROM THE STATE-OWNED ENTERPRISES OF BANGLADESH”. Journal of Business Economics and Finance 13 (1): 24-36. https://doi.org/10.17261/Pressacademia.2024.1899.

EndNote

Sobhan R, Sharmin T (June 1, 2024) EXAMINING THE NEXUS BETWEEN CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND EARNINGS MANAGEMENT: EVIDENCE FROM THE STATE-OWNED ENTERPRISES OF BANGLADESH. Journal of Business Economics and Finance 13 1 24–36.

IEEE

[1]R. Sobhan and T. Sharmin, “EXAMINING THE NEXUS BETWEEN CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND EARNINGS MANAGEMENT: EVIDENCE FROM THE STATE-OWNED ENTERPRISES OF BANGLADESH”, JBEF, vol. 13, no. 1, pp. 24–36, June 2024, doi: 10.17261/Pressacademia.2024.1899.

ISNAD

Sobhan, Raihan - Sharmin, Touhida. “EXAMINING THE NEXUS BETWEEN CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND EARNINGS MANAGEMENT: EVIDENCE FROM THE STATE-OWNED ENTERPRISES OF BANGLADESH”. Journal of Business Economics and Finance 13/1 (June 1, 2024): 24-36. https://doi.org/10.17261/Pressacademia.2024.1899.

JAMA

1.Sobhan R, Sharmin T. EXAMINING THE NEXUS BETWEEN CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND EARNINGS MANAGEMENT: EVIDENCE FROM THE STATE-OWNED ENTERPRISES OF BANGLADESH. JBEF. 2024;13:24–36.

MLA

Sobhan, Raihan, and Touhida Sharmin. “EXAMINING THE NEXUS BETWEEN CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND EARNINGS MANAGEMENT: EVIDENCE FROM THE STATE-OWNED ENTERPRISES OF BANGLADESH”. Journal of Business Economics and Finance, vol. 13, no. 1, June 2024, pp. 24-36, doi:10.17261/Pressacademia.2024.1899.

Vancouver

1.Raihan Sobhan, Touhida Sharmin. EXAMINING THE NEXUS BETWEEN CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE AND EARNINGS MANAGEMENT: EVIDENCE FROM THE STATE-OWNED ENTERPRISES OF BANGLADESH. JBEF. 2024 Jun. 1;13(1):24-36. doi:10.17261/Pressacademia.2024.1899