CSR practices and earnings management: the mediating effect of accounting conservatism and the moderating effect of corporate governance: evidence from Finnish companies

Abstract

Purpose

This study aims to examine the impact of corporate social responsibility (CSR) on earnings management (EM). Furthermore, the authors assessed the mediating effect of accounting conservatism (AC) on the CSR-EM relationship over the long term. The authors also tested the moderating effect of corporate governance (CG) on the AC-EM relationship in the Finnish context.

Design/methodology/approach

Linear regressions were applied to panel data using Thomson Reuters’ ASSET4 database. Data were collected from 140 Finnish firms between 2005 and 2022.

Findings

The results confirm that negative CSR has an impact on EM. Moreover, AC mediates the relationship between CSR and EM. Likewise, CG moderates the relationship between AC and EM.

Practical implications

This paper may interest academic researchers and potential and current investors. This paper will help investors make relevant investment decisions. Managers should pay special attention to their EM. These firms must take social responsibility vis-a-vis all their stakeholders.

Originality/value

To the best of the authors’ knowledge, this study is the first to use AC as a mediator and CG as a moderating variable in the Finnish context. This research will enrich the literature by providing a comprehensive picture of the relationships between CSR and EM through AC and CG in developed markets. Therefore, it is crucial to understand the implications of CSR in Finnish companies.

Citation

Alqatan, A. and Hichri, A. (2024), "CSR practices and earnings management: the mediating effect of accounting conservatism and the moderating effect of corporate governance: evidence from Finnish companies", Competitiveness Review, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/CR-10-2023-0253