Does socially committed bank manager manipulate earnings through dicretionary accruals? Empirical evidence from an emerging economy

Abstract

This paper aims to examine the relationship between corporate social responsibility reporting and earnings management. Precisely, we examine whether higher corporate social responsibility disclosures firms are gratified to perform in an accountable manner to restrain earnings management practices, thereby reporting higher-quality earnings to investors. The use of the generalised method of moments estimator for a Bangladeshi sample of 270 listed banking companies for the period 2009 to 2017 investigates the association between corporate social responsibility disclosures and earnings quality proxied by discretionary accruals. Results show that managers in an emerging economy manage earnings when they provide more CSR disclosures. Furthermore, Shariah compliant banks provide more corporate social responsibility information and maintain superior financial reporting quality through constraining earnings management. The outcomes of this research are noteworthy for both policymakers and market participants. Investors need to be cautious from the point of view that businessess engage in corporate social responsibility activities, behave ethically and provide transparent financial reports. Hence, policy makers need to be vigilant about this opportunistic practice and improve observing to implement social agreement. Probably, some strategies can be introduced to settle that corporate social responsibility revelations are grounded on genuine exercise and not just a “greenwash” proclamation to mislead shareholders.