Title: Forcing responsibility? Examining earnings management induced by mandatory corporate social responsibility: evidencefrom India

Author (s):: Bansal M.; Kumar V.

Journal: Review of Accounting and Finance

Month and Year: August 2021

Abstract: Purpose: This study aims to investigate the impact of mandatory corporate social responsibility (CSR) spending legislation on the earnings management strategies of firms. Design/methodology/approach: The authors use panel data regression models to analyze the data for this study. This study covers the post-legislation period, which spans over five years from the financial year ending March 2015 to the financial year ending March 2019. Findings: The results show that firms manipulate accounting measures to avoid breaching the cut-off criteria for mandatory CSR. In particular, the results show that firms operating around the operating revenue threshold misclassify operating revenue as non-operating revenue. In contrast, firms operating around the net worth and net profit thresholds do downward real and accrual earnings management. These results are consistent with several robustness measures. Originality/value: To the best of the authors’ knowledge, this is the first study that examines the impact of mandatory CSR spending on earnings management. © 2021, Emerald Publishing Limited.

Document Type: Article

DOI: https://doi.org/10.1108/RAF-06-2020-0151