The Relation between Corporate Social Responsibility and Earnings Quality

• In Event: Financial Accounting & Reporting III - Corporate Governance and Corporate Social Responsibility (100 mins)

Abstract

This study examines the relation between corporate social responsibility (CSR) and earnings quality, where earnings persistence serves as a proxy for earnings quality. The predictive nature of earnings persistence is valued by users of financial information as predictability improves the decision usefulness of earnings. I hypothesize and find that firms which engaged in socially responsible behaviors enjoy higher levels of persistence as compared to firms which chose socially irresponsible actions. My results also suggest that firms which engaged in socially responsible behaviors should focus on internal rather than external activities, as internal actions, investments within the firm, improve earnings quality. On the other hand, my results suggest that the most dramatic declines in earnings quality are driven by external rather than internal social irresponsibility. My findings are consistent with prior research, align with positive accounting theory, and provide evidence in an area of the literature that has been under explored.

Author

• Robert Stephen Hogan, College of Charleston