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The Relationship Between Corporate Social Responsibility and Earnings Management: An Exploratory Study

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Abstract

In this article, we explore the relationship between corporate social responsibility (CSR) and earnings management (EM). Our CSR index, using KLD data, incorporates information from the following issue areas: the community, corporate governance, diversity, the product, employee relations, the environment, and human rights. Results show that more socially responsible firms have higher quality accruals and less activity-based EM, both of which impact financial reporting quality.

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Authors and Affiliations

  1. North Dakota State University, Fargo, ND, USA

    Yongtao Hong & Margaret L. Andersen

Authors
  1. Yongtao Hong
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  2. Margaret L. Andersen
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Corresponding author

Correspondence to Margaret L. Andersen.

Appendix: Components of the Strengths and Concerns for the KLD Issue Areas

Appendix: Components of the Strengths and Concerns for the KLD Issue Areas

Community

Strengths:

  • Charitable giving

  • Innovative giving

  • Non-US charitable giving

  • Support for housing

  • Support for education

  • Indigenous peoples relations

  • Volunteer programs

  • Other strengths

Concerns:

  • Investment controversies

  • Negative economic impact

  • Indigenous peoples relations

  • Tax disputes

  • Other concerns

Corporate Governance

Strengths:

  • Limited compensation

  • Ownership

  • Transparency

  • Political accountability

  • Other strengths

Concerns:

  • High compensation

  • Ownership

  • Accounting

  • Transparency

  • Political accountability

  • Other concerns

Diversity

Strengths:

  • CEO

  • Promotion

  • Board of Directors

  • Work/Life benefits

  • Women and minority contracting

  • Employment of the disabled

  • Gay and lesbian policies

  • Other strengths

Concerns:

  • Controversies

  • Non-representation

  • Other concerns

Employee Relations

Strengths:

  • Union relations

  • No-layoff policy

  • Cash profit sharing

  • Employee involvement

  • Retirement benefit

  • Health and safety

  • Other strengths

Concerns:

  • Union relations

  • Health and safety

  • Workforce reductions

  • Retirement benefit

  • Other concerns

Environment

Strengths:

  • Beneficial products and services

  • Pollution prevention

  • Recycling

  • Clean energy

  • Communications

  • Property, plant and equipment

  • Management systems

  • Other strengths

Concerns:

  • Hazardous waste

  • Regulatory problems

  • Ozone depleting chemicals

  • Substantial emissions

  • Agricultural chemicals

  • Climate change

  • Other concerns

Human Rights

Strengths:

  • Positive record in South Africa

  • Indigenous peoples human relations

  • Labor rights

  • Other strengths

Concerns:

  • South Africa

  • Northern Ireland

  • Burma

  • Mexico

  • Labor rights

  • Indigenous peoples relations

  • Other concerns

Product

Strengths:

  • Quality

  • R&D/Innovation

  • Benefits to economically disadvantaged

  • Other strengths

Concerns:

  • Product safety

  • Marketing/contracting

  • Antitrust

  • Other concerns

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Hong, Y., Andersen, M.L. The Relationship Between Corporate Social Responsibility and Earnings Management: An Exploratory Study. J Bus Ethics 104, 461–471 (2011). https://doi.org/10.1007/s10551-011-0921-y

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  • DOI: https://doi.org/10.1007/s10551-011-0921-y

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