Does corporate social responsibility affect earnings management? Evidence from the Indonesian banking industry
Abstract
This paper aims at examining the effect of corporate social responsibility on earnings management in the Indonesian banking industry. Using Indonesian publicly listed banking firms in the years of 2013–2015 as the sample, we generate 94 firm-year observations as the final sample. The results show that corporate social responsibility positively affects earnings management, suggesting that the higher the corporate social responsibility score, the greater earnings management. Further, the study investigates the effects of corporate social responsibility on absolute earnings management, positive earnings management, and negative earnings management. The results robustly demonstrate the positive effects of corporate social responsibility on earnings management. Thus, this study implies that investors need to be cautious of banks that engage in higher corporate social responsibility because they are more likely to exhibit greater earnings management. While most of the previous studies in this issue focus on developed countries as their research settings, this study provides empirical evidence on the relationship between corporate social responsibility in Indonesia as an emerging market.
Keyword : corporate social responsibility, earnings management, discretionary acrual, banking, disclosure, Indonesia
How to Cite
Setiawan, D., Prabowo, R., Arnita, V., & Wibawa, A. (2019). Does corporate social responsibility affect earnings management? Evidence from the Indonesian banking industry. Business: Theory and Practice, 20, 372-378. https://doi.org/10.3846/btp.2019.35
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Law Nu.25/2007. Law of the Republic of Indonesia concerning Capital Investment.
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Roberts RW (1992) Determinants of corporate social responsibility disclosure: An application of stakeholder theory. Accounting, Organizations, and Society 17 (6): 595-612. https://doi.org/10.1016/0361-3682(92)90015-K
Sarumpaet S (2006) The relationship between environmental performance and financial performance of Indonesian companies. Jurnal Akuntansi dan Keuangan 7 (2): 89-98.
Scholtens B, Kang F-C (2013) Corporate social responsibility and earnings management: evidence from Asian Economies. Corporate Social Responsibility and Environmental Management 20 (2): 95-112. https://doi.org/10.1002/csr.1286
Setiawan D, Bandi B, Phua LK, Trinugroho I (2016) Ownership structure and dividend policy in Indonesia. Journal of Asia Business Studies 10 (3): 230-252. https://doi.org/10.1108/JABS-05-2015-0053
Setiawan D, Hapsari RT, Wibawa A (2018) Dampak Karakteristik Dewan Direksi terhadap Pengungkapan Corporate Social Responsibility pada Perusahaan Pertambangan di Indonesia. Mix: Jurnal Ilmiah Manajemen 8 (1): 1-15. https://doi.org/10.22441/mix.2018.v8i1.001
Shafer WE (2015) Ethical climate, social responsibility, and earnings management. Journal of Business Ethics 126 (1): 43-60. https://doi.org/10.1007/s10551-013-1989-3
Siregar SV, Yanivi B (2010) Corporate social reporting: empirical evidence from Indonesia Stock Exchange. International Journal of Islamic and Middle Eastern Finance and Management 3 (3): 241-252. https://doi.org/10.1108/17538391011072435
Statistics_Indonesia (2018) Economic Report on Indonesia.
Sun N, Salama A, Hussainey K, Habbash M (2010) Corporate environmental disclosure, corporate governance, and earnings management. Managerial Auditing Journal 25 (7): 679-700. https://doi.org/10.1108/02686901011061351
Untoro W, Permatasari W, Trinugroho I, Setiawan D (2017) Past performance, family business, and CEO succession: the case of Indonesia. International Journal of Trade and Global Markets 10 (2-3): 236-250. https://doi.org/10.1504/IJTGM.2017.086071
Wang X, Cao F, Ye K (2018) Mandatory Corporate Social Responsibility (CSR) reporting and financial reporting quality: evidence from a quasi-natural experiment. Journal of Business Ethics 152 (1): 253-274. https://doi.org/10.1007/s10551-016-3296-2
Awuy VP, Sayekti Y, Purnamawati I (2016) Pengaruh Pengungkapan Corporate Social Responsibility (CSR) Terhadap Earnings Response Coefficient (ERC) (Suatu Studi Empiris Pada Perusahaan Pertambangan yang Terdaftar di Bursa Efek Indonesia Pada Tahun 2010–2013). Jurnal Akuntansi dan Keuangan 18 (1): 15-26.
Beaver WH, Engel EE (1996) Discretionary behavior with respect to allowances for loan losses and the behavior of security prices. Journal of Accounting and Economics 22 (1): 177-206. https://doi.org/10.1016/S0165-4101(96)00428-4
Chih H-L, Shen C-H, Kang F-C (2008) Corporate social responsibility, investor protection, and earnings management: Some international evidence. Journal of Business Ethics 79 (1): 179-198. https://doi.org/10.1007/s10551-007-9383-7
Cho E, Chun S (2016) Corporate social responsibility, real activities earnings management, and corporate governance: evidence from Korea. Asia-Pacific Journal of Accounting & Economics 23 (4): 400-431. https://doi.org/10.1080/16081625.2015.1047005
Donaldson T, Preston LE (1995) The stakeholder theory of the corporation: concepts, evidence, and implications. Academy of Management Review 20 (1): 65-91. https://doi.org/10.5465/amr.1995.9503271992
Fauzi H, Idris KM (2009) The relationship of CSR and financial performance: New evidence from Indonesia companies. Issues in Social and Environmental Accounting 3 (1): 66-87. https://doi.org/10.22164/isea.v3i1.38
Fitriani H, Setiany E (2014) Pengaruh voluntary disclosure of financial information dan CSR Disclosure terhadap Earning Response Coefficient. Jurnal Akuntansi dan Bisnis 14 (2). https://doi.org/10.20961/jab.v14i2.158
Gargouri RM, Shabou R, Francoeur C (2010) The relationship between corporate social performance and earnings management. Canadian Journal of Administrative Sciences 27 (4): 320-334. https://doi.org/10.1002/cjas.178
Gras-Gil E, Manzano MP, Fernández JH (2016) Investigating the relationship between corporate social responsibility and earnings management: Evidence from Spain. BRQ Business Research Quarterly 19 (4): 289-299. https://doi.org/10.1016/j.brq.2016.02.002
Grougiou V, Leventis S, Dedoulis E, Owusu-Ansah S (2014) Corporate social responsibility and earnings management in U.S. banks. Accounting Forum 38 (3): 155-169. https://doi.org/10.1016/j.accfor.2014.05.003
Hidayat WY, Kakinaka M, Miyamoto H (2012) Bank risk and non-interest income activities in the Indonesian banking industry. Journal of Asian Economics 23 (4): 335-343. https://doi.org/10.1016/j.asieco.2012.03.008
Hong Y, Andersen ML (2011) The relationship between corporate social responsibility and earnings management: an exploratory study. Journal of Business Ethics 104 (4): 461-471. https://doi.org/10.1007/s10551-011-0921-y
Kim Y, Park MS, Wier B (2012) Is earnings quality associated with corporate social responsibility? The Accounting Review 87 (3): 761-796. https://doi.org/10.2308/accr-10209
Law Nu.25/2007. Law of the Republic of Indonesia concerning Capital Investment.
Law Nu.40/2007. Law of the Republic of Indonesia concerning Limited Liability Company.
Liu M, Shi Y, Wilson C, Wu Z (2017) Does family involvement explain why corporate social responsibility affects earnings management? Journal of Business Research 75: 8-16. https://doi.org/10.1016/j.jbusres.2017.02.001
Martínez-Ferrero J, Gallego-Álvarez I, García-Sánchez IM (2015) A Bidirectional analysis of earnings management and corporate social responsibility: the moderating effect of stakeholder and investor protection. Australian Accounting Review 25 (4): 359-371. https://doi.org/10.1111/auar.12075
Muttakin MB, Khan A, Azim MI (2015) Corporate social responsibility disclosures and earnings quality: Are they a reflection of managers’ opportunistic behavior? Managerial Auditing Journal 30 (3): 277-298. https://doi.org/10.1108/MAJ-02-2014-0997
Oeyono J, Samy M, Bampton R (2011) An examination of corporate social responsibility and financial performance: A study of the top 50 Indonesian listed corporations. Journal of Global Responsibility 2 (1): 100-112. https://doi.org/10.1108/20412561111128555
Prior D, Surroca J, Tribó JA (2008) Are socially responsible managers really ethical? Exploring the relationship betweenearnings management and corporate social responsibility. Corporate Governance: An International Review 16 (3): 160-177. https://doi.org/10.1111/j.1467-8683.2008.00678.x
Roberts RW (1992) Determinants of corporate social responsibility disclosure: An application of stakeholder theory. Accounting, Organizations, and Society 17 (6): 595-612. https://doi.org/10.1016/0361-3682(92)90015-K
Sarumpaet S (2006) The relationship between environmental performance and financial performance of Indonesian companies. Jurnal Akuntansi dan Keuangan 7 (2): 89-98.
Scholtens B, Kang F-C (2013) Corporate social responsibility and earnings management: evidence from Asian Economies. Corporate Social Responsibility and Environmental Management 20 (2): 95-112. https://doi.org/10.1002/csr.1286
Setiawan D, Bandi B, Phua LK, Trinugroho I (2016) Ownership structure and dividend policy in Indonesia. Journal of Asia Business Studies 10 (3): 230-252. https://doi.org/10.1108/JABS-05-2015-0053
Setiawan D, Hapsari RT, Wibawa A (2018) Dampak Karakteristik Dewan Direksi terhadap Pengungkapan Corporate Social Responsibility pada Perusahaan Pertambangan di Indonesia. Mix: Jurnal Ilmiah Manajemen 8 (1): 1-15. https://doi.org/10.22441/mix.2018.v8i1.001
Shafer WE (2015) Ethical climate, social responsibility, and earnings management. Journal of Business Ethics 126 (1): 43-60. https://doi.org/10.1007/s10551-013-1989-3
Siregar SV, Yanivi B (2010) Corporate social reporting: empirical evidence from Indonesia Stock Exchange. International Journal of Islamic and Middle Eastern Finance and Management 3 (3): 241-252. https://doi.org/10.1108/17538391011072435
Statistics_Indonesia (2018) Economic Report on Indonesia.
Sun N, Salama A, Hussainey K, Habbash M (2010) Corporate environmental disclosure, corporate governance, and earnings management. Managerial Auditing Journal 25 (7): 679-700. https://doi.org/10.1108/02686901011061351
Untoro W, Permatasari W, Trinugroho I, Setiawan D (2017) Past performance, family business, and CEO succession: the case of Indonesia. International Journal of Trade and Global Markets 10 (2-3): 236-250. https://doi.org/10.1504/IJTGM.2017.086071
Wang X, Cao F, Ye K (2018) Mandatory Corporate Social Responsibility (CSR) reporting and financial reporting quality: evidence from a quasi-natural experiment. Journal of Business Ethics 152 (1): 253-274. https://doi.org/10.1007/s10551-016-3296-2