Received: 27 February 2019 Revised: 2 May 2019 Accepted: 19 May 2019

DOI: 10.1002/csr.1803

RESEARCH ARTICLE

Corporate social responsibility and earnings management: The

moderating effect of corporate governance mechanisms

Samuel Buertey1 | Eun‐Jung Sun1 | Jang Soon Lee1 | Juhee Hwang2

1
Department of Accounting, Hannam
University, Daejeon, South Korea
2
Department of Business Administration,
Sungkyunkwan University, Seoul, South Korea
Correspondence
Eun‐Jung Sun, Department of Accounting,
Hannam University, Daejeon, South Korea.
Email: belle@hnu.kr
Funding information
Hannam University Research Fund
Abstract
Research Question/Issue: This paper investigates the relationship between (a) cor-
porate social responsibility (CSR) and earnings management (EM) and (b) examines
whether corporate governance (CG) mechanisms can moderate the CSR–EM relation.
Research Methodology: Fixed‐effect regression model is used to estimate the
coefficients of the variables.
Research Findings/Insight: We find a significant positive relation between CSR and
EM. The result highlights the managerial opportunistic use of CSR explained within
the agency theoretical framework. We also find that board size and block ownership
significantly moderates the CSR–EM relationship.
Theoretical/Academic Implications: The paper contributes to the literature on
CSR, EM, and CG. Specifically, it contributes to the extant literature by demonstrating
why and how CG can significantly influence the CSR–EM nexus. Second, the paper
provides some insight on the mixed findings of prior studies that have investigated
the relationship between CSR and EM.
Practical/Policy Implication: The findings have significant implication for both pol-
icy makers, firm managers, and other stakeholders. Insights from the study will help
develop and implement policies that will strengthen CG structures, especially in
emerging markets to protect the interest of shareholders and improve market
confidence.

K E Y W OR D S

agency theory, corporate governance, corporate social responsibility, earnings management,

environmental performance, stakeholder engagement

1 | I N T RO D U CT I O N between CSR and EM and subsequently investigated whether CG

Corporate social responsibility (CSR) has been shown to be signifi-
cantly related to earnings management (EM; e.g., Jordaan, De Klerk,
& De Villiers, 2018; Yip, Van, & Cahan, 2011; Pyo & Lee, 2013;
Scholtens & Kang, 2013; Grougiou, Leventis, Dedoulis, & Owusu‐
Ansah, 2014, Prior, Surroca, & Tribo, 2008, Chih, Shen, & Kang,
2008; Petrovits, 2006). However, studies examining how corporate
governance (CG) mechanisms might influence the CSR–EM relation-
ship are rare. Therefore, in this study, we examined the relationship
mechanisms can potentially moderate the CSR–EM relationship.
Globally, the issue of CSR has gain a wider acceptance among both
stakeholders and corporate organizations. According to Grant (2008),
the pursuit of CSR initiatives has become an acceptable corporate
practices among all form of business organizations. Engagement in
CSR activities has become the socially endorsed way by which firms
meet the expectations of other stakeholder groups such as employees,
customers, non‐governmental agencies, media, and the communities
where they operate. Managers through CSR activities are able to

256 © 2019 John Wiley & Sons, Ltd and ERP Environment wileyonlinelibrary.com/journal/csr Corp Soc Resp Env Ma. 2020;27:256–271.
BUERTEY ET AL.
bestow legitimacy on their firms (Grougiou et al., 2014) and win the
support of stakeholders, which is important if they are to continue
to exist (Gray, Kouhy, & Lavers, 1995). According to Latif and Sajjad
(2018), “CSR has evolved from being a philanthropic approach to a
strategic business necessity in order for firms to achieve competitive
advantage.” Through CSR initiative, firms are able to maximize share-
holders value and increase their market share.
Despite the positive contribution that CSR brings to the corporate
table, recent papers (Chih et al., 2008; Grougiou et al., 2014; Jordaan
et al., 2018; Prior et al., 2008; Pyo & Lee, 2013) have called attention
to the managerial opportunistic use of CSR. Grougiou et al. (2014)
argue that managers' engagement in CSR activities could be motivated
by personal gain (opportunistic use) rather than for the benefit of
stakeholders. The pursuit of CSR activities could become a medium
by which firms secure their reputation, which could serve as a cover
up to engage in the pursuit of their personal interest. That is, giving
the benefits of CSR, self‐interested managers may pursue CSR initia-
tives not for the general good of all stakeholders, but in pursuit of
potential private benefits. According to Prior et al. (2008), managers
who distort earnings information through the pursuit of private bene-
fits may be motivated to engage more in CSR activities as a way of
diverting attention and also to manipulate the information needs of
shareholders.
Earnings information is distorted when managers, relying on their
superior knowledge and control over both the operations and financial
reporting system of a firm, compute earnings to achieve
predetermined goals. This is known as EM in the existing literature.
Studies such as Jordaan et al. (2018); Grougiou et al. (2014); Prior
et al. (2008), Chih et al. (2008), and Petrovits (2006) established a pos-
itive relation between CSR and EM. That is, firms that engage more in
CSR initiatives are also likely to engage more in EM. Managers pursuit
of private benefits at the expense of stakeholders is made possible by
the information asymmetry between the two. The separation of own-
ership and control creates the agency problem between mangers
(agent) and shareholders (principal), where management, as rational
human beings are prone to set their personal interest above that of
shareholders in the decision making process. Managerial opportunism
in CSR decision making is a product of the agency problem.
However, extant literature has argued that CG mechanisms exist
to mitigate the agency problem between managers and stakeholders.
CG mechanisms serve as a monitoring system that aligns the man-
agers' interest to that of the larger stakeholder groups. According to
Choi, Lee, and Park (2013), the opportunistic behaviour of manage-
ment can be reduced when the system includes an effective monitor-
ing mechanism. In this study, we posit that the existence of good CG
mechanisms will reduce any abusive use of CSR and improve firm
reporting systems.
Although many studies have examined the relationship between
CSR and EM, the mitigating effect of CG in the lights of CSR and
EM is lacking. The aim of this study is to revisit the CSR–EM relation-
ship and to examine how CG mechanisms could influence both the
direction and strength of this relationship within the agency theoreti-
cal framework. Specifically, the study examines the relationship
257
between CSR and EM and the moderating effect of CG mechanisms
such as board size, independent directors on a corporate board, insti-
tutional ownership, and block ownership in the South African context.
South Africa provides an interesting avenue for this study because
in South Africa, the issue of CRS is not only a frequent topic for con-
versation and debate, but also something firms are actively pursuing
(Michael, 2011). The country is a leader in CG and CSR promotion
and reporting among emerging economies and the leader in Africa.
The development of CSR in South Africa according to Aletter, von
der Burg, and Zanella (2010) has gained international recognition. Fur-
ther to that, in a recent study, Jordaan et al. (2018) reported of a pos-
itive linear relationship between CSR and EM in South Africa.
Examining the effect of CG mechanisms on the CSR–EM relationship
is of great importance to the capital market in South Africa. As a devel-
oping market, the issue of agency conflict and information asymmetry
are likely to be high. The result of the study will advance the course of
CG, which will improve corporate reporting and transparency. Trans-
parency in corporate reporting will improve investor confidence in
the market and promote investment. Second, the results of the study
will also provide some empirical explanation to the inconsistency in
the literature on CSR–EM relationship.
The rest of the paper is organized in the following order: the next
section reviews the most relevant literature and develops the research
hypotheses. This is followed by the research methodology, the popu-
lation sample, variables used, and the empirical models employed. The
final section presents the findings, discussion, and summary of the
study.
2 | LITERATURE REVIEW AND
D E V E L O P M E N T OF H Y P O T H E S I S
2.1 | Literature review
CSR, EM, and the moderating effect of CG is explained within the
agency theory. According to Jensen and Meckling (1976), the separa-
tion of ownership and control creates what is known as the agency
problem. The agency problem brings about the problem of information
asymmetry as a result of the information superiority that management
enjoys as insiders. Prior studies (Beaudoin, 2008; Soheil & Zuraidah,
2015) have shown that agency problem leads to EM. Although Gener-
ally Accepted Accounting Principles gives room for exercising judg-
ment and discretion in the financial reporting process, the lapses are
sometimes abused by managers (EM) for potential private benefits.
The separation of ownership and control gives rise to self‐interested
mangers to “select and apply accounting estimates and techniques
that can increase their own wealth” (Soheil & Zuraidah, 2015).
Beaudoin (2008) argues that when there are agency problems, man-
agers book larger discretionary expense accruals to increase their
bonus prospects.
Prior et al. (2008) contend that managers who distort earnings
information through the pursuit of private benefits may be motivated
to engage more in CSR activities as a way of diverting attention and
258
also to manipulate the information needs of shareholders. Hemingway
and Mackling (2004) corroborated this assertion by stating that among
private companies, the pursuit of CSR initiatives could be associated
with advancing the personal values of mangers and to conceal the
negative effect of corporate misconduct. Martinez‐Ferrero et al.
(2016) reported that firms use CSR to conceal EM practices. The case
of the erstwhile global energy giant, Enron, provides a good explana-
tion. Before the accounting scandal in 2000, Enron was considered
as a socially responsible firm (Kim, Park, & Wier, 2012).
One way by which the agency problem is mitigated is through
effective CG practices. CG includes set of structures, rules, and sys-
tems within and outside the firm that protects shareholders' value.
CG is designed to align the interest of managers with shareholders.
The existence of an effective CG mechanism will influence the agency
conflict and thereby moderate the CSR–EM relation such that the
abusive use of CSR will be more widespread for firms with weaker
governance control mechanism. Although considerable number of
studies have examined the relationship between CSR and EM, a
review of existing literature shows that studies that jointly examine
CSR, EM, and CG in the context of agency theory are lacking. By
including CG, this study sought to go beyond establishing the relation-
ship between CSR and EM, to empirically establish the possibility of
other variables affecting the direction and/or strength of the CSR–
EM relation.
The finding will provide some insight into the role of CG mecha-
nisms in mitigating the opportunist behaviour of managers when
agency conflict exists. The CG variables under consideration includes
board independence, board size, institutional ownership, and owner-
ship concentration.
2.2 | Previous studies and hypotheses development
According to the Commission of the European Communities (2001),
CSR is “a concept whereby companies decide voluntarily to contribute
to a better society and a cleaner environment.” Through CSR activities,
managers are able to bestow legitimacy on their firms (Grougiou et al.
2014) and win the support of stakeholders, which is important if they
are to continue to exist. CSR can be a business strategic (Rahman &
Norman, 2016) through with a business can simultaneously improve
its value and promote social development (Hur & Kim, 2017).
According to Jones (1995), companies operating with the support
and trust of society and committed to CSR practices have a greater
tendency to show a higher commitment to ethical behaviour. From
the ethical view point, it is argued that firms that engage more in
CSR also behave appropriately in their financial reporting. Porter and
Kramer (2006) stated that both society and firms believe that compa-
nies have the moral obligation to engage in actions for the benefits of
all, whether these actions are profitable or not. Empirically, Pyo and
Lee (2013) reported that South Korean firms that engage in more cor-
porate charity initiatives practice higher accounting conservatism and
engage in less EM. According to Chih et al. (2008, pp. 179) who inves-
tigated CSR and the quality of accounting information reporting,
BUERTEY ET AL.
“there is no question that with a greater commitment to CSR, the
extent of earnings smoothing is mitigated, that of earnings losses
and decreases avoidance is reduced.”
Contrary to this position, Hemingway and Maclagan (2004) argued
that a manager might pursue CSR activities as a cover up for corporate
misconduct. If firms engage in CSR initiatives for private benefits, they
are prone to mislead the market in their financial reportage (Kim et al.,
2012). Petrovits (2006) examined the use of corporate charity schemes
by firms to attain a premeditated financial objective. He documented
the opportunistic use of CSR by managers to achieve set objectives.
Thus, when firms are underperforming, they turn to contribute more
towards charitable ventures as a leverage for their income‐increasing
choices. Grougiou et al. (2014) also conducted similar studies among
U.S. banks and reported that banks that involve more in EM are also
highly engaged in CSR activities. In a more recent work, Jordaan et al.
(2018) provide evidence that South African firms with better CSR per-
formance are more prone to involve in EM through income increasing
discretionary accruals. Because the present study is based on the South
African context, we expect a positive relationship between CSR and
EM. This leads us to our first hypothesis:
Hypothesis 1. There is a positive relationship between
CSR and EM.
2.3 | The moderating effect of CG on the CSR–EM
relationship
As mentioned earlier, the separation of ownership and control give rise
to agency conflict and leads to information asymmetry between firm
management and stakeholders. The existence of the problem of infor-
mation asymmetry could be a breeding avenue for the pursuit of individ-
ual private benefits. The severity the problem of information
asymmetry, the higher the managerial opportunistic pursuit and vice
versa. According to Choi et al. (2013), the opportunistic behaviour of
management are curtailed when the system includes an effective mon-
itoring mechanism. CG is one of such mechanisms. An effective CG sys-
tem promotes “corporate transparency and accountability, and
maintains a balance between the shareholders' wealth maximisation
and the diverse interests of various stakeholders” (Haque, Arun, &
Kirkpatrick, 2008). Jensen and Meckling (1976) opines that CG serves
as the last resort that align the interest of both shareholders and man-
agers. CG mechanisms such as board independence, board size, institu-
tional ownership, and ownership concentration play an importance role
in aligning the interest of the manager to that of the larger stakeholder
group. The following subsections discuss how the various CG mecha-
nisms potentially influence the CSR–EM association.
2.3.1 | Board size
According to Fama and Jensen (1983), “monitoring and controlling”
the activities of management are the most important functions of
the board of directors. A larger board is more likely to exercise better
oversite responsibility over management than a smaller board. A larger
BUERTEY ET AL.
corporate board is likely to include people with adequate diversity in
respect of business and academic background, skills, and expertise
that will be helpful not only in the monitoring of management activi-
ties but also in formulating strategic policy directions for the firm to
maximize shareholders value. A large board consisting of people with
diverse experience will prevent only few people from serving on
almost all the committees of the board. The King III report that is a
set of CG guidelines for South African firms leaves the issue of board
size in the hands of firms to decide. The board is to decide if its size,
diversity, and demography makes it effective (Institute of Directors,
Southern Africa, 2016). According to Anderson, Mansi, and Reeb
(2004), the size of the board plays a vital role in the ability of directors
to effectively monitor and reduce agency conflict. Such boards may
also be helpful in conflict resolutions (Kaymak and Bektas (2017) and
stakeholder engagement on CSR initiatives and disclosure. Board size
could therefore be expected to significantly influence the CSR–EM
relationship. This leads us to our second hypothesis:
Hypothesis 2. Board size will significantly moderate the
relationship between CSR–EM.
2.3.2 | Board independence
Independent directors play a vital role in protecting the welfare of
investors (Solomon, Lin, Norton, & Solomon, 2003). The effectiveness
of a corporate board in monitoring the manager depends on the
extent to which the board is independent of management (Liao,
Mukherjee, & Wang, 2015). Studies such as (Klein (2002)) and Bedard,
Chtourou, and Courteau (2004) have demonstrated the importance of
board independence as a CG mechanism in mitigating the agency
problem between management and shareholders. The work of
Jiraporn and Gleason (2007) shows that outside independent directors
on a corporate board constrains EM. The South African King III report
of CG recommends that a board should comprise a balance of execu-
tive and nonexecutive directors, with the 1majority being independent
nonexecutive directors. This is to ensure the independence of the
board. An effective independent corporate board will have a signifi-
cant influence on management choices. Therefore, our third hypothe-
sis is that
Hypothesis 3. Board independence will significantly
moderate the CSR–EM nexus.
2.3.3 | Institutional ownership
Institutional investors have a responsibility to safeguard their interest
by ensuring that the personal interest of managers do not override
that of shareholders. Due to the substantial amount of shares held
by institutional investors, they are exposed to higher risk compared
with individual shareholders, and this motivates them to keep their
eyes on managers. Due to their size, institutional investors are more
efficient than individual investors in collecting and interpreting firm‐
specific information about managerial decisions and operations (Sam-
uel, 1996). Effective institutional investors play an active role in
259
mitigating the agency problem. Jiraporn and Gleason (2007) provide
evidence that institutional investors significantly reduce EM activities.
Due to their substantial ownership stake, they are able to demand
quality accounting information disclosure from firms to aid their
investment decision. Institutional investors can influence corporate
decisions through their substantial voting rights in the firm (Choi
et al. (2013). Owing to their potential to monitor corporate disclo-
sures, they are able to curtail any managerial adverse use of CSR.
Therefore, our fourth hypothesis is stated as
Hypothesis 4. Institutional owners will significantly
moderate the CSR–EM nexus.
2.3.4 | Block ownership
When corporate firm ownership becomes too fractured, it does not
ensure effective monitoring of managerial activities. The “dispersed
shareholders” who hold an insignificant proportion of the diluted shares
of the company may either lack the ability or may not have the incentive
to effectively monitor the activities of management. Study has however
shown that share ownership concentration improves the quality of
managerial monitoring. Block shareholders have an information advan-
tage over individual private shareholders and are able to hold managers
accountable. This reduces the agency problem and restricts managerial
entrenchment, leading to an improvement in firm's accounting informa-
tion disclosure. Economically, in the event of corporate failures through
management opportunistic tendencies, concentrated owners with a
higher stake in the firm stand to lose more, compared with dispersed
owners. Hence, concentrated or block owners would be better posi-
tioned to effectively monitor the activities of managers to reduce any
managerial adverse use of CSR. According to Michelon & Parbonetti
(2012), block owners do not only monitor the activities of management,
they also play a “reputation role.” Based on the discussion, we expect
block owners to significantly moderate the CSR–EM relationship. This
therefore leads us to the fifth hypothesis:
Hypothesis 5. Block/concentrated owners will signifi-
cantly moderate the CSR–EM nexus.
3 | R ES E A RC H C O N T E X T A N D
METHODOLOGY
3.1 | CG and CSR in the South African context
The development of CG and CSR in South Africa has gained interna-
tional recognition (Aletter et al., 2010). Among emerging economies,
South Africa is at the forefront advancing CG and CSR reforms aimed
at addressing the lapses in corporate reporting in developing coun-
tries. In South Africa, the issue of CG and CSR is not only a topic for
conversation and debate, firms are actively pursuing it with tangible
evidence Micaela (2011). The country's leading role in CG and CSR
could be attributed to the standards and laws that were adopted, as
a way of ensuring transparency and accountability (Scholtz, Connolley,
260
& Calitz, 2013). These are made up of both mandatory requirements
and voluntary guidelines and initiatives such as King Report on Corpo-
rate Governance, Black Economic Empowerment Act, and Johannes-
burg Stock Exchange's Social Responsibility Investment Index (SRI
Index).
Arguably, the most significant milestone for South African compa-
nies when it comes to CG and CSR has been the King Report on CG
developed by the Institute of Directors in South Africa. The King Com-
mittee that was established in 1993 has been at the forefront driving CG
and ethical business practices in South Africa. Since its inception, the
Committee has come out with four successive reports or codes that
form a comprehensive approach to CG. The King 2 report placed
emphasis on directors' sustainability obligations, including social
accounting, stakeholder engagement, ethics, environment, health,
safety, societal transformation, and black economic empowerment
(Visser, 2005). The King 3 report that became applicable from March
2010 integrates governance, strategy, and sustainability as a necessary
corporate disclosure requirement. The latest version of the King Report,
King 4, that came into effect since April 2017 seeks to promote greater
transparency in business. On CSR, the King 4 highlights the interdepen-
dency relationship between organizations and society: “I am because
you are; you are because we are”; and encourage organizations to take
responsibility for the “environmental outcomes” of their operations
(Institute of Directors, 2016). Even though the King Report still repre-
sent a voluntary standard, it gets enforced through the JSE listing con-
ditions, making it a mandatory requirement for JSE listing firms (Lee,
Buertey, & Sun, 2018).
Unlike many Anglo‐American countries, CG reforms in South
Africa mainly focuses on improving CG practices broadly for both cor-
porate shareholders and stakeholders (Ntim, Opong, Danbolt, &
Thomas, 2012). It is a deliberate effort by the country to address the
aftermath socio‐economic problems of apartheid (Ntim & Soobaroyen,
2013), the country's dark history marked by segregation and political
and socio‐economic discrimination against non‐European groups.
Commitment to CSR initiatives are no longer for the “haves,” it has
become an essential business strategy for all forms of business organi-
zations that seeks to survive and grow. More than before, stake-
holders now expect organizations to be actively involved in CSR and
“challenge businesses on matters pertaining to the fair distribution of
wealth, black economic empowerment, climate change, a scarcity of
potable water and other environmental issues” (Rea, 2012).
Beyond these efforts, corporate ownership still remains highly con-
centrated in South Africa, leading to what can be described as weak
shareholder activism. This, to a large extent, has affected the effective
implementation and enforcement of corporate regulations in the
country (IOD, 2002; Ntim & Soobaroyen, 2013). These shortfalls have
weakened the markets' ability to effectively influence and control
managerial activities in South Africa (Henry, 2008). Again, the lapses
have not guaranteed the improvement of accounting information
quality in the country (e.g., Leuz, Nanda, & Wysocki, 2003; Rabin &
Negash, 2008; Ames, 2003).
Despite the effort to promote both CG and CSR in South Africa,
weak shareholder activism and the presence of managerial
BUERTEY ET AL.
entrenchment has the potential to affect CSR initiatives. Existing liter-
ature has provided enough evidence on both CSR and EM in South
Africa. This study seeks to examine the relationship between CSR
and EM and consequently examine if CG has any potential influence
on the CSR–EM relationship.
3.2 | Data and sample selection
Our sample consist of nonfinancial institutions on the Johannesburg
Stock Exchange from five main industries: consumer goods, consumer
services, basic materials, industries, and technology/telecoms. As in pre-
vious studies (Buvanendra, Sridharan, & Thiyagarajan, 2017; Pucheta‐
Martínez & Gallego‐Álvarez, 2018), firms under finance and insurance
sectors are excluded from the sample due to their peculiar financial
and business nature. Their accounting practices and accrual characteris-
tics differ from other firms, making them incompatible to be included in
the study sample. Also for a nonfinancial firm to be included in the sam-
ple, it must have accessible financial and CSR data covering the research
period, 2012–2015. After considering these criteria, we were left with a
final sample of 118 firms, with a total panel data of 354 firm‐year obser-
vations across the five main industries. Financial data covering the
period was extracted from the compustat global vantage database.
We matched the financial data to CSR data obtained from CSRHub
database (https://www.csrhub.com).
3.3 | Measurement of CSR variables
The accurate measurement of CSR has been a herculean task for
researchers. To overcome this challenge, prior studies resort to the
use of CSR data disclosed by global rating institutions. Faced with
the same challenge, we choose the CSRHub's ratings as a measure-
ment of CSR performance for the current study. CSRHub is rated
among the world's leading CSR rating institutions. It integrates more
than 125 sources of information from a wide variety of environmental,
social, and governance information on firms into a single data portal
that provides consolidated access to socially responsible investment
practices of firms globally. It rates more than 17,500 firms from 141
countries. A firm's performance is evaluated taking into consideration
the CSR contribution made by both subsidiaries and the parent com-
pany, and these data are updated at regular time intervals. The over
a million data variables collated by the system are categorized into
12 subcategories of CSR performance, and the data are converted into
a numerical score. The 12 subcategories are further condensed into
four main groups—community, governance, employees, and environ-
ment. CSRHub's sustainability metrics are used by a wide range of
professionals from both industry, research, and academic institutions
(Agyei‐Mensah & Buertey, 2018). Following the work of Kim et al.
(2012), we use CSRHub's performance score assigned to three (com-
munity, employees, and environment) out of the four main categories
of CSR performance. Governance is excluded from the score because
the governance category covers disclosure of firm policies and proce-
dures perceived as distinct construct.
BUERTEY ET AL.
3.4 | Measurement of EM variables
As in prior works (e.g., Gargouri & Shabou, 2010; Jordaan et al., 2018;
Klein, 2002; Warfield, John, & Kenneth, 1995), we used discretionary
accruals as proxy for EM. This is ascertained by dividing current
accruals into nondiscretionary accrual and discretionary accrual. We
estimated the value of the discretionary accruals using the cross‐
sectional model of Kothari, Leone, and Wasley (2005).
3.5 | Measurement of CG variables
Data on the four CG variables employed in the study were all
extracted from the annual financial and integrated reports of the
sampled firms. The reports were obtained from the websites of
African Market, a leading portal on African capital markets that
provides market data and information on firms listed on the African
continent. We measured the CG variables following the examples of
prior studies (Bedard et al., 2004; Cremers & Nair, 2005; Kim & Lu,
2011; Klein, 2002; Ntim & Soobaroyen, 2013). Board size is
measured as the total number of directors on a company's board.
Board independence represents the percentage of independent
nonexecutive directors on a corporate board. Institutional ownership
is the percentage of ordinary shares of a company held by institu-
tions. And finally, block ownership represent the percentage of
shares held by investors with at least 5% of the equity ownership
in a firm.
3.6 | Measurement of control variables
Our regression model includes other variables that could also influ-
ence the level of CSR and EM. We include leverage (ratio of long‐
term debt to the total value of assets) to control for the potential
effect of debt on EM and CSR commitment. Previous studies have
shown that, to avoid violating debt covenants or to reduce debt
contracting costs, high leverage firms are more likely to engage in
EM (Press & Weintrop, 1990). We however do not expect highly
leverage firms to be much committed to CSR activities. The effect
of firm size on EM is controlled by using total assets on a log scale.
The relationship between firm size and EM remains uncertain (Chih
et al., 2008). Firm size, however, has been shown as having an influ-
ence on a firm's engagement in CSR (Ali, Frynas, & Mahmood, 2017).
We control for the effect of firm performance using return on
assets (ROA) measured by the ratio of earnings before interests and
taxes to the total value of assets. From the work of Dechow, Sloan,
and Sweeney (1995), discretionary accrual is said to be associated
with financial performance. On the other hand, we expect that the
better the financial results of the firm, the higher the possibility of it
engaging in more social responsible activities. We also control for firm
growth (percentage change in revenues from year t‐1 to year t).
According to Skinner and Sloan (2002), growth firms are more likely
to attract the attention of stakeholders. As a result, they may engage
more in CSR activities as a way of gaining legitimacy and to reduce
261
excessive public scrutiny. The effect of a firm's financial resources is
also controlled for. It is measured as the ratio of cash flow from oper-
ating (OCF) activities to total assets. The type of auditor a firm has is
also included in the model. Prior research has established that due to
the resource and the experience that larger auditing firms have, they
are able to protect the interest of investors through the quality of their
work. And according to DeAngelo (1981), big auditing firms stand to
“lose more” if they fail to disclose any accounting irregularities in a
particular client's financial statements. This means firms that engage
the services of big audit firms are less likely to engage in EM. In this
study, we employed a dummy variable of 1 if a firm is audited by
any of the Big 4 and 0 if not.
3.7 | Research model
To test the hypotheses put forth, we used panel data regression
techniques. To avoid the limitations of ordinary least square method
in panel data analysis enumerated by previous researchers
(Ugrinowitsch, Fellingham, and Ricard (2004)); Wooldridge, 2010),
we used fixed‐effect regression model (Hou, 2018; Ntim &
Soobaroyen, 2013) to estimate our coefficients. This method ensures
unobserved firm‐specific variations are controlled for. The three
models below represent the fixed‐effect regression models used for
the analysis. The first model explains the relationship between CG
and CSR. The second model examines the CSR–EM nexus. The third
model examines the moderating effect of CG on the CSR–EM rela-
tionship. In both models, the same control variables are used.
Model 1:
CSRit ¼ α0 þ λ1 CGit þ ∑ λi CONTROLSit þ ΣIND þ ΣYD þ ɛt (1)
Model 2:
EMit ¼ α0 þ λ1 CSRit þ ∑ λi CONTROLSit þ ΣIND þ ΣYD þ ɛit (2)
Model 3:
EMit ¼ α0 þ λ1 CSR*CGit þ λ2 CSRit þ λ3 CGit þ ∑ λi CONTROLSit (3)
þ ΣIND þ ΣYD þ ɛit
Where:
CSR = net score of CSR ratings computed from CSRHub's default
weight‐of‐importance assigned to three main categories of CSR per-
formance: community, environment, and employees.
CG = corporate governance variables (board size, board indepen-
dence, institutional ownership, and block ownership).
EM = earnings management proxy by discretionary accruals
computed through the cross‐sectional model of Kothari et al. (2005).
CONTROL = control variables, including profitability, leverage, firm
size, firm financial resources, growth, and type of audit firm.
ΣIND = industry dummy.
ΣYD = year dummy.
262
4 | EMPIRICAL RESULTS
4.1 | Descriptive statistics and bivariate correlation
matrix
Table A1 shows the results of the descriptive analysis. There were a
total of 354 observations under each variable. The CSR scores shows
a maximum of 71 to a minimum of 30 out of a total of 100 score. The
result shows a wide variation in firms' commitment to CSR activities in
South Africa. Similar to the CSR scores, there is a greater degree of
variance in discretionary accrual measurement of firms, ranging from
a minimum of −1.06 to a maximum of 0.81. The mean value of
−0.0023% of lagged total assets means firms are somehow inclined
to income decreasing EM practices. The maximum board size is 20
and a minimum of 5. On the average, 57% of board members are inde-
pendent. The CG guidelines in South Africa has no cap on board size.
It leaves the issue of board size in the hands of firms to decide. Simi-
larly, it only recommends firms to include a balance of executive and
independent directors on the board. This explains the heterogeneity
in the results on both the board size and independent directors. On
the average, institutional investors and block owners hold about
90% and 45% of equity shares, respectively. The average return on
equity is approximately 11%, meaning that firms performed well
within the study period. Also, 89% of the sample firms are audited
by Big 4 auditing firms.
Table A2 presents the results of the Pearson correlation matrix
that sought to pre‐examine the correlation between the variables
to identify the existence of any econometric problem such as
multicollinearity in the model. The highest correlation among the
variables is 0.58, which is less than the 0.8 rule of thumb, indicating
a low possibility of multicollinearity. In addition, we calculate the
variance inflation factors (VIF) for each variable. All the VIF are less
than 5, the highest VIF is 1.706, providing further confirmation that
the research has no multicollinearity issues (Hair, Black, Babin, &
Anderson, 2010). The result in the Pearson correlation matrix provides
some support for our hypotheses. CSR shows a positive correlation
with EM (0.134) and significant at 5% level. Three of the CG variables
(board size, institutional ownership, and block ownership) show a
negative association with EM. The same CG variables are positively
correlated with CSR. Among the control variables, leverage, firm size,
and cash flow from operating activities (OCF) all have a positive con-
nection with CSR.
4.2 | Multivariate regression analysis result
4.2.1 | The relation between CG and CSR
Table A3 below presents the fixed‐effect regression results on the
relationship between CSR as the dependent variable and CG as the
independent variable. All variables are winsorized at 1% and 99% to
eliminate outliers. Detailed discussion and interpretation of the results
is done at the last section. In Column 1, we regressed the CSR index
BUERTEY ET AL.
over the CG variables. The results show that three of the four CG var-
iables are predictive of CSR. Board size has a positive relationship with
CSR (β = .516, t = 3.01, p < .001). The result means that an increase
(decrease) in the number of people on a corporate board is likely to
lead to about 3.0% increase (decrease) in CSR performance of firms.
Although the association between board independence and CSR is
positive, it is not statistically significant. Our third CG variable, institu-
tional investors, have a strong positive relationship with CSR (β = .151,
t = 3.65, p < .001). Finally, block ownership has a positive but weak
relationship with CSR (β = .029, t = 1.94, p < .100). This means that
a one standard deviation increase (decrease) in block ownership leads
to about 2.0% increase in firm CSR performance.
In Columns 2, 3, and 4 of Table A3, we examined the effect of
the four CG variables on the individual CSR i1ndicators/dimensions
(community, employee, and environment). In Column 2, institutional
investors have a positive and significant relationship with the com-
munity dimension of CSR (β = .167, t = 3.60, p < .001). Board size
also has a positive relationship, but it is statistically insignificant.
Both board independence and block ownership have an insignificant
negative relationship with the community variable. In Column 3,
board size, board independence, and block ownership have a posi-
tive and significant relationship with the employee dimension of
CSR. In Column 4, all the four CG variables have a positive associa-
tion with the environmental component of CSR, but only two, insti-
tutional ownership and block owners, are statistically significant at
the conventional 5% level.
Our regression model includes other control variables with some
interesting results. In Column 1, we find leverage and firm size
driving CSR initiatives among our sampled firms. On the contrary,
sales growth has a negative and significant associated with CSR.
The rest of the control variables (ROA, OCF, and Audit) have no
significant relationship. The result is not much different in the other
columns. Our fixed‐effect regression models included year and
industry dummies.
4.2.2 | The relationship between CSR and EM
Under this section, we regressed EM over CSR to determine the rela-
tionship between the two variables. We used the fixed‐effect model 2
specified above. The model controls for both year and industry
effects. As in the previous analysis, all variables are winsorized at 1%
and 99% to eliminate possible outliers.
Following prior studies (e.g., Grougiou et al., 2014; Jordaan et al.,
2018; Kim et al., 2012; Prior et al., 2008), we used the absolute
value of discretionary accruals (ABS_DA) for the analysis in Column
1 of Table A4. Subsequently, we split the sample into positive dis-
cretionary accrual (Positive_DA) and negative discretionary
(Negative_DA) to examine their relationship with CSR. In the first col-
umn, we find the estimated coefficient of CSR to be 0.002, and it is
positively significant at 5%. The findings provide support for our first
hypothesis. Thus, firms who engage in more CSR activities are more
likely to engage in EM. We observed similar result in Column 2
when we regressed the Positive_DA over CSR. There is a positive
BUERTEY ET AL.
and significant relationship between CSR and Positive_DA (β = .036,
t = 2.54, p < .001), suggesting that firms that usually engage in
CSR are more likely to engage in income increasing EM. On the
other hand, we found no significant association between CSR and
the Negative_DA in the third analysis as reported in Column 3.
Among the control variables, ROA is negatively associated with
EM and statistically significant (p < .001). This could mean that well
performing firms tend to engage less in EM. Growth is significant
and positively associated with EM at the conventional 5% level. This
suggests that as firms experience growth and expansion, they are
more likely to engage in EM. Firms experiencing growth will usually
receive the attention of both investors and analyst. Mangers of such
firms in a bid to meet the expectations of the market are more likely
to engage in EM. Firms financial resources (OCF) also has a positive
but weak significant relation with EM at 10% significant level. The
other control variables, leverage and firm size, are insignificant.
4.2.3 | The moderating effect of CG on the CSR–EM
relationship
Table A5 reports the results of the moderating effect of the four CG
variables on the relationship between CSR and EM. The analysis fol-
lows the fixed‐effect regression model 3 specified above. Again, all
variables are winsorized at 1% and 99% to eliminate possible outliers,
and the model controls for both year and industry effects.
In Column 1, we regressed EM over CSR in time t. The estimated
coefficient for CSR is positive and significant (β = .011, t = 2.51,
p < .01). Among our variables of interest, we find a negative relation
between Board Size*CSR and EM. Specifically, the estimated coeffi-
cient on Board Size*CSR is negative and statistically significant
(p < .01). The result is consistent with Hypothesis 2, that is, board
size significantly moderates the CSR–EM relation. Additionally, we
find that Block Own.*CSR is negatively associated with EM
(β = −.607, t = −1.75, p < .100). The result also provides support
for the fifth hypothesis put forth. The two empirical evidence sug-
gest that an increase (decrease) in the number of directors on a cor-
porate board and in the percentage of shares held by block owners
will potentially reduce (increase) managerial abusive use of CSR. In
the other results, Board Ind.*CSR and Inst. Own.*CSR are statistically
insignificant.
In Column 2 of Table A5, we regressed EM over CSR in time t‐1.
First, it could be argued that CSR in a particular year will have an
effect on the accounting numbers in the succeeding year. To ascer-
tain this, we include a 1‐year lag between CSR and EM. We
restructured the fixed‐effect model specified in Equation (3) above
to include the lag effect. Similar to the previous result, we found
CSR to be positively associated with EM (β = −.016, t = −2.03,
p < .004). This implies that the result is very robust in estimating a
lagged CSR–EM structure. For the moderating effect, we find that
Board Size*CSRt‐1 is still negative and statistically significant at the
conventional 5%. The remaining three are however statistically
insignificant.
263
4.2.4 | Additional analysis based on individual CSR
components
Prior studies (Jordaan, et al., (2018; Ntim & Soobaroyen, 2013; Kim
et al., 2012; Mattingly & Berman, 2006) investigated both the aggre-
gate and subscores of CSR performance and EM. As an additional
analysis, we regressed EM over the three CSR components, commu-
nity engagement, employee relations, and environmental perfor-
mance. The focus is to examine further whether there is any
variation in how the individual CSR components affect EM. We
employed the fixed‐effect regression Equation (1) under the research
model above.
As shown in Column 1 of Table A6, the community subcomponent
of CSR has a positive relationship with EM, and it is statistically signif-
icant (p < .04). Both employee relation and environment show a weak
positive association with EM at a statistically significant level of 10%.
The findings are consistent with the previous evidence that firms that
engage more in CSR are more likely to engage in EM. Also, the esti-
mated coefficients of the control variables do not differ much from
the previous evidence. ROA is negatively linked to EM and statistically
significant in all the sections. Again, growth is also positively associ-
ated with EM and statistically significant at 5%, whereas OCF shows
a weak positive relationship with EM.
5 | DISCUSSION AND CONCLUSION
Although a considerable number of studies have examined the rela-
tionship between CSR and EM, the available evidence remains incon-
clusive. A more recent study by Jordaan et al. (2018) in South Africa
corroborates the evidence provided by some prior studies (e.g., Chih
et al., 2008; Grougiou et al., 2014; Pyo & Lee, 2013) on the managerial
opportunistic use of CSR. In this study, we revisit the CSR–EM topic
from the agency theoretical perspective. We examined the relation-
ship between CSR and EM and subsequently investigated whether
CG mechanism(s) is likely to influence the CSR–EM link. The study is
based on a sample of firms listed on the Johannesburg Stock
Exchange, South Africa, from 2013 to 2015.
In the first analysis, we examined the relationship between four CG
mechanisms: board size, board independence, institutional ownership,
and block ownership on CSR performance. From Table A3, we find evi-
dence of a strong positive relationship between board size and CSR.
The result is consistent with the prior evidence provided by Ntim
and Soobaroyen (2013), Frías‐Aceituno, Rodriguez‐Ariza, and Gracía‐
Sánchez (2013), and García‐Meca and Pucheta‐Martínez (2017). The
result suggests that firms with larger directors are more likely to
engage in CSR activities. The South Africa CG guideline (King Report)
leaves the maximum board size in the hands of companies to decide. A
larger board potentially brings about people with the right expertise to
serve on board committees, including the social, ethical, and transfor-
mational committee, which is recommended by the CG guidelines in
South Africa. The presence of experts on such corporate boards will
264
lead to the formulation of appropriate CSR policies and strategies that
meets the expectations of stakeholders and improves firm's value.
Second, institutional owners show a positive connection with CSR.
Empirically, the positive result is consistent with earlier studies (e.g., Jo
& Harjoto, 2012; Oh, Chang, & Martynov, 2011). The evidence eco-
nomically means that when institutional investors own a significant
share in the equity capital of a firm, they are likely to influence firm
managers to invest more in CSR activities. Socially responsible institu-
tional owners and ethical funds now represent a greater percentage of
the global investment fund. The Government Employee Pension Fund
of South Africa, Africa's largest pension fund, became a signatory to
the United Nations Principles of Responsible Investment in 2007. As
a signatory, the Government Employee Pension Fund agreed to
include environmental, social, and governance issues into their invest-
ment decision‐making process (Philadi, 2008). Ethical institutional
owners have come to stay, and firm managers seeking to attract
investment cannot ignore them. Such investors have a long‐term
investment perspective, and they are able to positively influence the
CSR activities of firms when they hold a significant percent of the cor-
porate equity shares.
Third, block ownership show a positive but weak relationship with
CSR. The result suggests that that a one standard deviation increase
(decrease) in block ownership will lead to about 2.0% increase
(decrease) in firm CSR performance. This result is rather inconsistent
with the negative effect reported by Barnea and Rubin (2010); Jo
and Harjoto (2012); Khan, Muttakin, and Siddiqui (2012). Given the
cross‐shareholdings within the South African corporate setting (Ntim,
Opong, & Danbolt, 2012), it is not far from truth that most block
owners are likely to be institutional owners. This could explain why
block owners, with the same influence as institutional owners, are able
to positively influence CSR activities in the South African context.
Finally, although the relationship between board independence and
CSR points to the positive direction, it is not statistically significant.
Empirically though, the result is consistent with the findings of
Roshima, Yuserrie, and Hasnah (2009), Michelon and Parbonetti
(2012), and Prado‐Lorenzo, Gallego‐Álvarez, and Garcia‐Sánchez
(2009).
The second part of the analysis examined the relationship between
CSR and EM. From Table A4, we observed a positive link between CSR
and EM. This means that firms that engage usually in CSR are also
more likely to engage in EM. The result highlights the opportunistic
use of CRS by managers who engage in EM. The result is consistent
with prior studies (e.g., Grougiou et al., 2014; Jordaan et al., 2018;
Petrovits, 2006; Prior et al., 2008) that argued that CSR can potentially
be used to advance managers' personal interest. Petrovits (2006), for
instance, provided evidence on the use of corporate charity schemes
by firms to attain a premeditated financial objective. Thus, when firms
are underperforming, they are more likely to contribute towards char-
itable ventures as a leverage for their income‐increasing choices. Our
result also confirms an earlier empirical result by Jordaan et al.
(2018) that South African firms that are actively engaged in CSR are
also actively involved in EM through income increasing discretionary
accruals. The managerial opportunistic financial reporting is a product
BUERTEY ET AL.
of the agency problem, where management tend to place their per-
sonal interest above that of stakeholders in the decision‐making pro-
cess. However, through effective CG monitoring mechanisms, the
opportunistic behaviour of management are curtailed Choi et al.
(2013).
Consequently, we proceeded to investigate the potential moderat-
ing effect of CG mechanisms on the CSR–EM nexus. Out of the four
CG variables considered, we find evidence for board size and block
ownership. Corporate boards provide strategic directions and ensure
that management comply with corporate rules and regulations. A
larger board is more likely to exercise its oversite responsibility over
management better than a smaller board. Effective monitoring reduces
the agency and information asymmetry between management and
shareholders. This is consistent with the finding of Imoleayo,
Omolehinwa, Mukoro, Ben‐Caleb, and Olamide (2016) who reported
that board size is able to restrain EM. Larger boards come with diver-
sity in knowledge and experience that is vital for effective monitoring
and scrutiny to ensure that management decisions are aligned to that
of the larger stakeholder group. This is in line with the objective of the
CG guidelines in South Africa that leaves firms to decide on the max-
imum board size that will be appropriate for effective monitoring and
supervision.
Again, we find evidence that when shareholdings by block owners
are higher, the adverse use of CSR is discouraged. Economically, it
implies that the rate of change of the expected value of EM with
respect to CSR changes for different value of shares held by block
owners. The finding is consistent with agency theory (Jensen &
Meckling, 1976) that argued that large block shareholders have
greater incentive to monitor and curtail managerial opportunism
because the estimated benefits accruing from their ownership inter-
ests surpass the cost of monitoring (Jiang, Habib, & Smallman, 2009).
The result is also consistent with the work of Usman and Yero
(2012) who reported that ownership concentration effectively moder-
ates EM. On the average, about 55.5% of South African corporate
shares are held by block shareholders (Lemma, Negash, & Mlilo,
2013). These group of shareholders have both their interest and repu-
tation to protect. In the event of corporate failure through managerial
opportunistic decision making, they stand to suffer more lose than dis-
persed shareholders. Hence, every increase in block ownership poten-
tially discourage the adverse use of CSR.
Finally, the result shows that board independence and institutional
investors do not have a significant moderating effect on the CSR–EM
link. However, both variables show a positive relationship, which
inferably could mean that the greater the proportion of independent
directors on a corporate board, the greater the possibility of curbing
any managerial adverse use of CSR as a form of “reputation insurance”
to engage in EM. Similarly, it can be inferred that when institutional
investors own a greater portion of the equity share of companies, they
are more likely to mitigate the relation between CSR and EM.
In summary, unlike prior studies that only examined the relation-
ship between CSR and EM, this study went further to investigate
how CG variables potentially influence the CSR–EM relationship. We
provide evidence from the South African context that CSR is positively
BUERTEY ET AL.
related to EM after controlling for industry, year, and individual firm
characteristics. We have also established that board size and block
ownership significantly moderates the CSR–EM relationship. The find-
ings contribute to the literature in many ways. First of all, it provides
evidence that better‐governed firms are more likely to pursue good
social responsibility initiatives than poorly governed firms. Second, it
is also established that a combination of CG mechanisms, board size
and block share ownership, and CSR has a negative effect on EM. This
finding provides some insight on the mixed findings of prior studies
that have investigated the direct relationship between CSR and EM.
Thus, depending on the CG mechanisms within a firm, the relationship
between CSR and EM is likely to change.
Finally, our findings have practical implications that could guide all
levels of stakeholders currently engaged in CSR and CG reforms. First,
the findings suggest that efforts by stakeholders to promote CSR
activities by firms should be pursued alongside institutional monitoring
mechanisms that will ensure that mangers opportunistic tendencies do
not override the ethical and legitimate purpose of CSR initiatives. Sec-
ond, because the results shows that effective CG mechanisms are able
to enhance CSR practices and promotes accounting transparency, we
expect both market regulators, government and policy will initiate
measures that will strengthen CG structures, especially in emerging
markets. Strengthening CG system will protect the interest of share-
holders and improve market confidence. For future studies, the results
highlight the need to control for the potential effect of CG variables
when examining the relationship between CSR and EM.
It is imperative to acknowledge that although there are various
forms of CG monitoring mechanisms within organizations, this study
used only four proxies due to the labour‐intensive nature of hand
collecting the CG data. The inclusion of other CG mechanisms in the
analysis could likely produce other interesting results. This we expect
future studies to consider under different jurisdictions.
ACKNOWLEDGEMEN T
This work was supported by 2018 Hannam University Research Fund.
ORCID
Samuel Buertey https://orcid.org/0000-0002-1769-6062
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268 BUERTEY ET AL.

APPENDIX A

TABLE A1 Descriptive analysis

Mean SD Median Minimum Maximum VIF

EM −0.0023 0.1374 0.0067 −1.0595 0.8139

CSR 53.5254 7.8146 54.3333 30.0000 71.6700 1.613
Board Size 11.0468 2.4906 11.0000 5.0000 20.0000 1.513
Board Ind. 57.3683 14.7300 58.3683 23.0769 90.0000 1.706
Inst. Own. 90.4594 11.5457 94.2500 24.4000 98.9900 1.301
Block Own. 45.7475 20.0545 41.6350 10.7000 96.1000 1.636
ROA 0.1065 0.0897 0.0986 −0.1536 0.5739 1.617
Leverage 0.4847 0.1719 0.4745 0.0020 0.9232 1.538
Firm Size 9.4351 1.2031 9.4075 6.5345 13.4010 1.499
Growth 0.0806 0.2192 0.0609 −0.9422 0.8719 1.566
OCF 0.0849 0.1016 0.0707 −0.4826 0.6174 1.689
Audit F. 0.8900 0.3140 1.0000 0.0000 1.0000 1.410

TABLE A2 Pearson correlation matrix

1 2 3 4 5 6 7 8 9 10 11 12

1. EM 1
2 CSR .134* 1
3. Board Size −.058 .367** 1
4. Board Ind. .002 .090 −.070 1
5. Inst. Own. −.114* .283** .145* .079 1
6. Block Own. −.038 .181** .091 −.119* .023 1
7. ROA −.088 −.027 .013 −.045 −.144* −.079 1
8. Leverage .045 .322** .172** −.057 .160** .107 .005 1
9. Firm Size −.022 .317** .465** .130* .234** .045 −.114* .113* 1
10. Growth .126* −.120* −.110* −.058 −.100 −.008 .065 −.030 .104* 1
11. OCF −.002 .170** .039 .071 .038 −.012 .585** .059 −.105* .160** 1
12. Audit F. .003 −.047 −.112* .051 .272** .121* −.072 −.021 −.037 −.021 .056 1

Note. p values are indicated with an asterisk. Correlation is significant at less than 1 and 5 levels. The variables are defined above.
BUERTEY ET AL. 269

TABLE A3 Regression analysis on the effect of corporate governance on corporate social responsibility

CSR Index Comm. Ind Emply. Ind Envt. Ind.

Coeffs (t‐stats) Coeffs (t‐stats) Coeffs (t‐stats) Coeffs (t‐stats)

Board Size 0.516 3.01*** 0.280 1.46 1.108 2.93*** 0.160 0.73
Board Ind. 1.647 0.61 −1.555 −0.51 04.97 4.52*** 1.523 0.44
Inst. Own. 0.151 3.65*** 0.167 3.60*** 0.162 1.29 0.124 2.35**
Block. Own. 0.029 1.94* −0.005 −0.22 0.037 2.73*** 0.054 2.13**
ROA −0.956 −0.18 5.563 0.93 −6.167 1.29 −2.262 −0.33
Leverage 10.262 4.46*** 7.625 2.96*** 17.366 −0.81 5.796 1.98**
Firm Size 0.701 1.82* 1.401 3.25*** −0.094 5.27*** 0.797 1.63
Growth −3.956 −2.21** −1.865 −0.93 −5.095 −0.17 −4.910 −2.16**
OCF 7.330 1.54 2.264 0.43 24.631 −2.01 −4.905 −0.81
AUDIT −0.986 −0.73 −0.181 −0.12 −0.375 3.61*** −2.403 −1.41
Constant 19.659 4.34*** 16.332 3.22*** 19.015 2.93*** 23.633 4.10***
Year_Dummy Included Included Included Included
Industry_Dummy Included Included Included Included
Durbin‐W 1.93 1.74 1.78 1.76
Adjusted R .34 .23 .36 .26
F value 10.70 6.62 11.51 7.88
N 354 354 354 354

Note. p values are indicated with an asterisk. Correlation is significant at less than 1%, 5%, and 10% levels. The variables are defined above.

TABLE A4 Regression of EM on CSR relation

ABS_DA Positive_DA Negative_DA

Coeffs (t‐stats) Coeffs (t‐stats) Coeffs (t‐stats)

CSR 0.002 2.39** 0.036 2.54*** −0.005 −0.90

ROA −0.232 −2.78 ***
−0.094 −0.66 0.416 2.44**
Leverage −0.019 −0.53 −0.088 −1.67* −0.045 −0.61
Firm Size 0.006 1.29 0.013 1.99** 0.006 0.64
Growth 0.063 2.46 **
−0.021 −0.47 −0.127 −2.76***
OCF 0.127 1.71* −0.104 −0.77 −0.420 −2.68***
AUDIT 0.002 0.11 −0.039 −1.22 −0.029 −0.88
Constant 0.012 0.22 0.091 0.81 −0.009 −0.07
Year_Dummy Included Included Included
Industry_Dummy Included Included Included
Durbin‐W 1.71 1.81 1.43
Adjusted R .19 .13 .11
F value 3.93 2.91 3.10
N 354 149 205

Note. p values are indicated with an asterisk. Correlation is significant at less than 1%, 5%, and 10% levels. The variables are defined above.
Abbreviations: CSR, corporate social responsibility; EM, earnings management.
270 BUERTEY ET AL.

TABLE A5 The moderating effect of CG on the CSR–EM nexus

Column 1 Column 2

Coeffs (t‐stats) Coeffs (t‐stats)

CSRt 0.011 2.51**

CSRt‐1 0.016 2.03**
Board Size*CSRt (t‐1) −0.006 −2.75*** −0.004 −2.48**
Board Ind.*CSRt (t‐1) −0.005 −1.30 0.009 0.16
Inst. Own.*CSRt (t‐1) −0.026 −1.47 −0.013 −1.15
Block Own.*CSRt (t‐1) −0.607 −1.98** −0.004 −0.62
Board Sizet −0.037 −1.69* −0.025 −1.96*
Board Ind. t 0.275 1.23 −0.101 −0.32
Inst. Own. t −0.004 −2.33** 0.003 0.84
Block. Own. t −0.025 −1.42 0.012 −1.89*
ROAt −0.218 −3.43*** −0.227 −2.96***
Leveraget −0.004 −0.14 0.009 0.55
Firm Sizet −0.007 −1.43 −0.020 −3.26***
Growtht 0.017 0.77 0.025 2.35**
OCFt 0.093 1.61* 0.006 0.27
AUDITt 0.043 2.67*** 0.041 1.82*
Constant −0.311 −1.37 −0.417 −1.07
Year_Dummy Included Included
Industry_Dummy Included Included
Durbin‐W 1.68 1.84
Adjusted R .21 .18
F value 3.67 3.98
N 354 354

Note. p values are indicated with an asterisk. Correlation is significant at less than 1%, 5%, and 10% levels. The variables are defined above.
Abbreviations: CG, corporate governance; CSR, corporate social responsibility; EM, earnings management.
BUERTEY ET AL. 271

TABLE A6 Sensitively analysis of individual CSR components

1 2 3

Coeffs (t‐stats) Coeffs (t‐stats) Coeffs (t‐stats)

CSR
Commun. Ind. 0.002 2.02**
Emply. Ind. 0.001 1.95*
Envt Ind. 0.002 1.75*
ROA −0.243 −2.91*** −0.226 −2.69*** −0.236 −2.82***
Leverage −0.009 −0.25 −0.014 −0.39 −0.005 −0.13
Firm Size −0.006 −1.20 −0.004 −0.93 −0.005 −0.97
Growth 0.059 2.29** 0.061 2.38** 0.061 2.37**
OCF 0.138 1.86* 0.112 1.48 0.153 2.05**
AUDIT 0.003 0.02 0.001 0.07 0.002 0.114
Constant 0.033 0.59 0.035 0.63 0.039 0.707
Year_Dummy Included Included Included
Industry_Dummy Included Included Included
Durbin‐W 1.21 1.23 1.22
Adjusted R .13 .10 .10
F value 3.77 3.75 3.69
N 354 354 354

Note. p values are indicated with an asterisk. Correlation is significant at less than 1%, 5%, and 10% levels. The variables are defined above.
Abbreviation: CSR, corporate social responsibility.