Center for Advancing Accounting

Corporate Social Responsibility and Market Premium to Meet/Beat Earnings Benchmark

• In Event: ESG: Litigation, Juror Judgements and Earnings Management

Abstract

We examine the effect of CSR performance on the market response to MBE (meeting or beating earnings benchmark). We hypothesize and find that CSR performance reduces the market premium of MBE, particularly when CSR firms have engaged in earnings management to achieve MBE and when CSR firms are habitual beaters instead of sporadic beaters, whereas CSR performance mitigates the market penalty for missing earnings benchmark. Our results suggest that CSR performance is a double-edged sword. Our findings are robust to a multitude of control variables. Contributing to the literature, we explore the triangular interplay between CSR, MBE, and EM to identify the incremental damaging effect of CSR on firm value in cases where management engages in unethical conduct. Our framework of the triangular interplay can be widely applied in related future research, and our findings may have implications for market participants and regulators.

Authors

• Yu Bai, Louisiana State University in Shreveport

• Lin Wang, Midwestern State University

• Lanyi Yan Zhang, University of Houston–Downtown