Journal of Business Ethics

, Volume 133, Issue 2, pp 305–324 | Cite as

Corporate Social Responsibility as a Strategic Shield Against Costs of Earnings Management Practices

  • Jennifer Martínez-Ferrero
  • Shantanu Banerjee
  • Isabel María García-Sánchez


We highlight how Corporate Social Responsibility (CSR) can be strategically used against the negative perception from earnings management (EM). Using international data, we analyse the effect of CSR and EM on the cost of capital and corporate reputation. Results confirm that CSR strategy is positively valued by investors and other stakeholders. Contrary to EM, CSR has a positive effect on corporate reputation and lowers the cost of capital. In addition, we also find that the favourable effect of CSR on cost of capital is consistently more intense in firms that show signs of EM indicating that the market does not identify when CSR practices are used as a strategy to mask EM. We also demonstrate how institutional factors influence the above relationship.


Earnings management (EM) Corporate Social Responsibility (CSR) Cost of capital Corporate reputation Managerial discretion 



The authors wish to acknowledge the financial support of the Ministry of Science and Innovation for the research project ECO2010-15587 and Ethical Investment Research Services (EIRIS) Ltd. Any errors included in this paper are sole responsibility of the authors.


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Copyright information

© Springer Science+Business Media Dordrecht 2014

Authors and Affiliations

  • Jennifer Martínez-Ferrero
    • 1
  • Shantanu Banerjee
    • 2
  • Isabel María García-Sánchez
    • 1
  1. 1.Departamento de Administración y Economía de la Empresa, Facultad de Economía y EmpresaUniversidad de SalamancaSalamancaSpain
  2. 2.Department of Accounting and FinanceLancaster UniversityLancasterUK

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