CORPORATE SOCIAL RESPONSIBILITY AND REAL EARNINGS MANAGEMENT: DOES BOARD GENDER DIVERSITY MATTER?

Sonia Boukattaya; Sameh Halaoua

doi:10.46281/ijafr.v10i1.1635

Sonia Boukattaya University of Tunis, Tunisia https://orcid.org/0000-0003-2223-7650
Sameh Halaoua University of De Sousse, Tunisia https://orcid.org/0000-0002-5762-3642

DOI: https://doi.org/10.46281/ijafr.v10i1.1635

Keywords: Corporate Social Performance, Earnings Management, Financial Reporting, Stakeholder Engagement, Women on Boards.

Abstract

The purpose of this paper was to examine the moderating effect of board gender diversity on the relationship between corporate social responsibility (CSR) and real earnings management (REM). It drowns on French listed companies from 2005 to 2019. The results show that there is a positive relationship between CSR and REM. Our findings also show that this positive relation is moderated in firms with higher board gender diversity, mainly because female directors show a high socially responsible behaviour and are negatively associated with earnings management practices. Our results are robust to alternative board gender diversity measures, only after the quota law adoption. The positive relationship between CSR and REM suggests that companies with higher CSR performance are exposed to high discretionary behaviour. CSR can be strategically used by managers to hide unethical practices, such as real earnings management activities. In addition, the findings highlight the importance of board gender diversity in reducing agency costs and ensuring higher monitoring, particularly after the quota law adoption.

JEL Classification Codes: G3, M14, M41.

Author Biographies

Sonia Boukattaya, University of Tunis, Tunisia

Corporate Governance, Applied Finance and Audit Laboratory, Higher Institute of Management of Tunis, University of Tunis, Tunis, Tunisia

Sameh Halaoua, University of De Sousse, Tunisia

Corporate Governance, Applied Finance and Audit Laboratory, Higher Institute of Management of Tunis, University of Tunis, Tunis, Tunisia, Accounting and Finance department, Higher Institute of Management of Sousse, University of De Sousse, Sousse, Tunisia

References

Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of financial economics, 94(2), 291-309. https://doi.org/10.1016/j.jfineco.2008.10.007

Adams, R. B., & Funk, P. (2012). Beyond the glass ceiling: Does gender matter?. Management science, 58(2), 219-235. https://doi.org/10.1287/mnsc.1110.1452

Ajina, A., Lakhal, F., & Ayed, S. (2019). Does corporate social responsibility reduce earnings management? The moderating role of corporate governance and ownership. Management international/International Management/Gestiòn Internacional, 23(2), 45-55. https://doi.org/10.7202/1060030ar

Almahrog, Y., Aribi, Z. A., & Arun, T. (2018). Earnings management and corporate social responsibility: UK evidence. Journal of Financial Reporting and Accounting. https://doi.org/10.1108/JFRA-11-2016-0092

Al-Shaer, H., & Zaman, M. (2016). Board gender diversity and sustainability reporting quality. Journal of Contemporary Accounting & Economics, 12(3), 210-222. https://doi.org/10.1016/j.jcae.2016.09.001

Amar, A. B., & Chakroun, S. (2018). Do dimensions of corporate social responsibility affect earnings management? Evidence from France. Journal of Financial Reporting and Accounting, 16(2), 348-370. https://doi.org/10.1108/JFRA-05-2017-0033

Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The review of economic studies, 58(2), 277-297. https://doi.org/10.2307/2297968

Atinc, G., Srivastava, S., & Taneja, S. (2021). The impact of gender quotas on corporate boards: a cross-country comparative study. Journal of Management and Governance, 1-22. https://doi.org/10.1007/s10997-020-09562-6

Blasi, S., Caporin, M., & Fontini, F. (2018). A multidimensional analysis of the relationship between corporate social responsibility and firms' economic performance. Ecological Economics, 147, 218-229. https://doi.org/10.1016/j.ecolecon.2018.01.014

Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of econometrics, 87(1), 115-143. https://doi.org/10.1016/S0304-4076(98)00009-8

Bozzolan, S., Fabrizi, M., Mallin, C. A., & Michelon, G. (2015). Corporate social responsibility and earnings quality: International evidence. The International Journal of Accounting, 50(4), 361-396. https://doi.org/10.1016/j.intacc.2015.10.003

Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. Financial review, 38(1), 33-53. https://doi.org/10.1111/1540-6288.00034

Chi, W., Lisic, L. L., & Pevzner, M. (2011). Is enhanced audit quality associated with greater real earnings management?. Accounting horizons, 25(2), 315-335. https://doi.org/10.2308/acch-10025

Choi, B. B., Lee, D., & Park, Y. (2013). Corporate Social Responsibility, Corporate Governance and Earnings Quality: Evidence from K orea. Corporate Governance: An International Review, 21(5), 447-467. https://doi.org/10.1111/corg.12033

Cohen, D. A., & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity offerings. Journal of accounting and Economics, 50(1), 2-19. https://doi.org/10.1016/j.jacceco.2010.01.002

Cohen, D. A., Dey, A., & Lys, T. Z. (2008). Real and accrual‐based earnings management in the pre‐and post‐Sarbanes‐Oxley periods. The accounting review, 83(3), 757-787. https://doi.org/10.2308/accr.2008.83.3.757

Constantinescu, M., & Kaptein, M. (2020). Ethics management and ethical management: Mapping criteria and interventions to support responsible management practice. In O. Laasch, R. Suddaby, R. E. Freeman and D. Jamali (Eds.), Research handbook of responsible management (pp. 155-174). Edward Elgar Publishing: Cheltenham.

Cui, J., Jo, H., & Na, H. (2018). Does corporate social responsibility affect information asymmetry?. Journal of Business Ethics, 148(3), 549-572. https://doi.org/10.1007/s10551-015-3003-8

Eagly, A. H. (1987). Reporting Sex Differences, American Psychologist, 42(7), 756-757. https://psycnet.apa.org/doi/10.1037/0003-066X.42.7.755

El Diri, M. (2017). Introduction to earnings management. Springer: New York.

Elstad, B., & Ladegard, G. (2012). Women on corporate boards: key influencers or tokens?. Journal of Management & Governance, 16(4), 595-615. https://doi.org/10.1007/s10997-010-9165-y

Francoeur, C., Labelle, R., & Sinclair-Desgagné, B. (2008). Gender diversity in corporate governance and top management, Journal of Business Ethics, 81(1), 83-95. https://doi.org/10.1007/s10551-007-9482-5

Freeman, R. E. (1984). Strategic management: A stakeholder theory, Journal of Management Studies, 39(1), 1-21.

García‐Sánchez, I. M., & García‐Meca, E. (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

Ghaleb, B. A. A., Qaderi, S. A., Almashaqbeh, A., & Qasem, A. (2021). Corporate social responsibility, board gender diversity and real earnings management: The case of Jordan. Cogent Business & Management, 8(1), 1883222. https://doi.org/10.1080/23311975.2021.1883222

Goodstein, J., Gautam, K., & Boeker, W. (1994). The effects of board size and diversity on strategic change. Strategic management journal, 15(3), 241-250. https://doi.org/10.1002/smj.4250150305

Hamid, F., Hashim, H. A., & Salleh, Z. (2016). Auditor’s view on acceptability of clients’ earnings management practices. Corporate Ownership & Control, 13(4), 535-541. https://doi.org/10.22495/cocv13i4c4p2

Hill, C. W., & Jones, T. M. (1992). Stakeholder‐agency theory. Journal of management studies, 29(2), 131-154. https://doi.org/10.1111/j.1467-6486.1992.tb00657.x

Hillman, A. J., Withers, M. C., & Collins, B. J. (2009). Resource dependence theory: A review. Journal of management, 35(6), 1404-1427. https://doi.org/10.1177/0149206309343469

Hurley, D., & Choudhary, A. (2020). Role of gender and corporate risk taking. Corporate Governance: The International Journal of Business in Society, 20(3), 383-399. https://doi.org/10.1108/CG-10-2018-0313

Hussain, N., Rigoni, U., & Orij, R. P. (2018). Corporate governance and sustainability performance: Analysis of triple bottom line performance. Journal of Business Ethics, 149(2), 411-432. https://doi.org/10.1007/s10551-016-3099-5

Issa, A., & Fang, H. X. (2019). The impact of board gender diversity on corporate social responsibility in the Arab Gulf states. Gender in Management: An International Journal, 34(7), 577-605. https://doi.org/10.1108/GM-07-2018-0087

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

Jia, X. (2020). Corporate social responsibility activities and firm performance: The moderating role of strategic emphasis and industry competition. Corporate Social Responsibility and Environmental Management, 27(1), 65-73. https://doi.org/10.1002/csr.1774

Jordaan, L. A., De Klerk, M., & De Villiers, C. J. (2018). Corporate social responsibility and earnings management of South African companies. South African Journal of Economic and Management Sciences, 21(1), 1-13. .https://doi.org/10.4102/sajems.v21i1.1849

Kanter R.M. (1977). Some Effects of Proportions on Group Life. In P.P. Rieker, E. Carmen (Eds.), The gender gap in psychotherapy (pp. 53-78), Springer: Boston. https://doi.org/10.1007/978-1-4684-4754-5_5

Kim, S. H., Udawatte, P., & Yin, J. (2019). The effects of corporate social responsibility on real and accrual‐based earnings management: Evidence from China. Australian Accounting Review, 29(3), 580-594. https://doi.org/10.1111/auar.12235

Kim, Y., Park, M. S., & Wier, B. (2012). Is earnings quality associated with corporate social responsibility?. The accounting review, 87(3), 761-796. https://doi.org/10.2308/accr-10209

Lakhal, F., Aguir, A., Lakhal, N., & Malek, A. (2015). Do women on boards and in top management reduce earnings management? Evidence in France. Journal of Applied Business Research (JABR), 31(3), 1107-1118. https://doi.org/10.19030/jabr.v31i3.9236

Lara, J. M. G., Osma, B. G., Mora, A., & Scapin, M. (2017). The monitoring role of female directors over accounting quality. Journal of Corporate Finance, 45, 651-668. https://doi.org/10.1016/j.jcorpfin.2017.05.016

López-González, E., Martinez-Ferrero, J., & García-Meca, E. (2019). Does corporate social responsibility affect earnings management? Evidence from family firms. Revista de Contabilidad-Spanish Accounting Review, 22(2), 233-247. https://doi.org/10.6018/rcsar.349601

Maglio, R., Rey, A., Agliata, F., & Lombardi, R. (2020). Connecting earnings management and corporate social responsibility: A renewed perspective. Corporate Social Responsibility and Environmental Management, 27(2), 1108-1116. https://doi.org/10.1002/csr.1868

Martínez-Ferrero, J., Banerjee, S., & García-Sánchez, I. M. (2016). Corporate social responsibility as a strategic shield against costs of earnings management practices. Journal of Business Ethics, 133(2), 305-324. https://doi.org/10.1007/s10551-014-2399-x

Mnif, Y., & Cherif, I. (2020). Female board directorship and earnings management. Pacific Accounting Review, 33 (1), 114-141. https://doi.org/10.1108/PAR-04-2020-0049

Muttakin, M. B., Khan, A., & Azim, M. I. (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

Nadeem, M., Zaman, R., & Saleem, I. (2017). Boardroom gender diversity and corporate sustainability practices: Evidence from Australian Securities Exchange listed firms. Journal of Cleaner Production, 149, 874-885. https://doi.org/10.1016/j.jclepro.2017.02.141

Nekhili, M., Nagati, H., Chtioui, T., & Nekhili, A. (2017). Gender-diverse board and the relevance of voluntary CSR reporting. International Review of Financial Analysis, 50, 81-100. https://doi.org/10.1016/j.irfa.2017.02.003

Orazalin, N. (2019). Board gender diversity, corporate governance, and earnings management: Evidence from an emerging market. Gender in Management, 35(1), 37-60. https://doi.org/10.1108/GM-03-2018-0027

Pfeffer, J., & Salancik, G.R. (1978). The External Control of Organizations: A Resource Dependence Perspective. Harper &Row: New York.

Porter, M. E., & Kramer, M. R. (2006). The link between competitive advantage and corporate social responsibility, Harvard business review, 84(12), 78-92.

Pratiwi, I. S., & Siregar, S. V. (2019). The effect of corporate social responsibility on tax avoidance and earnings management: the moderating role of political connections. International Journal of Business, 24(3), 229-248.

Pucheta‐Martínez, M. C., Bel‐Oms, I., & Olcina‐Sempere, G. (2016). Corporate governance, female directors and quality of financial information. Business Ethics: A European Review, 25(4), 363-385. https://doi.org/10.1111/beer.12123

Rahman, M., & Chowdhury, S. (2020). Relationship between Corporate Social Responsibility and Earnings Management: A Systematic Review of Measurement Methods, International Journal of Trend in Scientific Research and Development, 4(2), pp. 389-397. http://www.ijtsrd.com/papers/ijtsrd29987.pdf

Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of accounting and economics, 42(3), 335-370. https://doi.org/10.1016/j.jacceco.2006.01.002

Shannon, C. E. (1948). A mathematical theory of communication. The Bell system technical journal, 27(3), 379-423. https://doi.org/10.1002/j.1538-7305.1948.tb01338.x.

Siciliano, J. I. (1996). The relationship of board member diversity to organizational performance. Journal of Business Ethics, 15(12), 1313-1320. https://doi.org/10.1007/BF00411816

Srinidhi, B. I. N., Gul, F. A., & Tsui, J. (2011). Female directors and earnings quality. Contemporary accounting research, 28(5), 1610-1644. https://doi.org/10.1111/j.1911-3846.2011.01071.x

Suchman, M. C. (1995). Managing legitimacy: Strategic and institutional approaches. Academy of management review, 20(3), 571-610. https://doi.org/10.5465/amr.1995.9508080331

Triki Damak, S. (2018). Gender diverse board and earnings management: evidence from French listed companies. Sustainability Accounting, Management and Policy Journal, 9(3), 289-312. https://doi.org/10.1108/SAMPJ-08-2017-0088

Vafaei, A., Ahmed, K., & Mather, P. (2015). Board diversity and financial performance in the top 500 Australian firms. Australian Accounting Review, 25(4), 413-427. https://doi.org/10.1111/auar.12068

Walker, M. (2013). How far can we trust earnings numbers? What research tells us about earnings management. Accounting and Business Research, 43(4), 445-481. https://doi.org/10.1080/00014788.2013.785823

Zalata, A. M., Ntim, C. G., Choudhry, T., Hassanein, A., & Elzahar, H. (2019). Female directors and managerial opportunism: Monitoring versus advisory female directors. The Leadership Quarterly, 30(5), 101309. https://doi.org/10.1016/j.leaqua.2019.101309

Zang, A. Y. (2012). Evidence on the trade-off between real activities manipulation and accrual-based earnings management. The accounting review, 87(2), 675-703. https://doi.org/10.2308/accr-10196