The association between Corporate Social Responsibility and Earnings Quality: Evidence from Extractive Industry

Abstract

Building on the ethical theory to solve the research questions, we examine the relationship between Corporate Social Responsibility Disclosure (CSRD) and Earnings Quality (EQ). Using 368 firm-year observations covering the 2010-2017 period. In so doing, we applied content analysis to assess the CSRD dimensions, and we applied discretionary accruals as a proxy of EQ activity. Based on panel data regression, we find a significant and negative relationship between CSRD and EQ in Mozambican extractive industry. Empirical evidence also shows that the influence of positive CSRD indicator (CSRD strengths scores) is much stronger than that negative CSRD indicator (CSRD concerns scores) in reducing earnings quality. These findings are consistent with the idea that the opportunistic managers use CSRD to reach their particular interest, suggesting that the managers are using CSRD as a strategic device to engage in earnings management (poorer earnings quality). The results are robust to alternative proxy measures of CSRD and earnings quality.