A Research On Relationship Among Corporate Social Responsibility, Financial Performance And Earnings Management

With the development of capital markets in recent years, accounting information has become an important basis for the capital market to play a basic role in resource allocation. And in all accounting information, earnings information is the focus of attention to investors, creditors and other stakeholders. Because of various motives, managers may engage in excessive earnings management, and thereby mislead the stakeholders to decide, seriously affecting the efficiency of resource allocation in capital markets. The best example is a series of accounting scandals happened in recent years. This paper argues that the lack of corporate social responsibility lead to earnings management essentially and corporate social responsibility requirements real and reliable earnings in nature. Previous research on corporate social responsibility focus on the relation between corporate social responsibility and financial performance and may neglect some important factors affected this relation, such as R & D intensity, corporate ownership structure, risk, firm size, financial leverage and financial resources. In addition to the factors mentioned above, earnings management may also affect the relation between corporate social responsibility and financial performance. In order to conceal their deliberate earnings management, managers engaged in earnings management may take corporate social responsibility as an entrenchment tool to obtain the support from stakeholders, this will weaken the positive impact of corporate social responsibility on financial performance. Corporate social responsibility may also be an alternative mechanism of corporate governance to control earnings management and reduce the damage of excessive earnings management on financial performance, and thus corporate social responsibility may have a positive impact on financial performance. Whether viewed from the point of entrenchment tool or alternative mechanism, we should consider earnings management when we study the relation between corporate social responsibility and financial performance. In other words, we should consider corporate social responsibility, financial performance and earnings management comprehensively. In addition, the research on the relationship between corporate social responsibility and earnings management is a new topic itself. According to the theoretical analysis and empirical results, the paper also discusses the corporate social responsibility, financial performance and earnings management in China and the construction of the internal control system of corporate social responsibility in China.Chapters of this paper are organized as follows:Chapter 1 is introduction. This chapter describes the research background and research objectives, defines the research framework, contents and methods and finally concludes the main innovation and limitation of this paper.Chapter 2 is literature review. First, this chapter reviews the concepts, theories and measured methods of corporate social responsibility, financial performance and earnings management,and then introduces the representative literature on the relation among them.Chapter 3 is theoretical analysis. In order to understand the entrenchment effect and alternative mechanisms, the relation among corporate social responsibility, financial performance and earnings management is analyzed in theory from two aspects in this chapter. In the first part, the relation between corporate social responsibility and financial performance is analyzed theoretically firstly, including discussing the research value, mechanism and hypothesis between them, and then that the relation between them is affected by earnings management is discussed.In the second part, the relation between corporate social responsibility and earnings management is analyzed theoretically In the first, including discussing the theoretical framework and hypothesis between corporate social responsibility and earnings management, and then analyzing the impact that earnings management on financial performance in theory.Chapter 4 is empirical study. In order to verify the entrenchment effect or alternative mechanisms, in this chapter, the score of "corporate social responsibility ranking of State-owned listed companies in China" is used to measure the extent of corporate social responsibility, discretionary accruals is used to measure the extent of earnings management, accounting and stock market data is used to measure financial performance. By multiple regression analysis, we test the hypothesis and the alternative mechanism has been verified. The main conclusions are as follows:1.The current and previous corporate social responsibility has no significant effect on financial performance without considering the impact of earnings management.2.The relation between corporate social responsibility and financial performance isn't moderated by earnings management negatively, entrenchment effect doesn't exist.3.Corporate social responsibility has significant negative effect on earnings management, alternative mechanisms works. Corporate social responsibility reduces the damage of excessive earnings management on financial performance. Corporate social responsibility has weak positive effect on financial performance when financial performance is measured by Q. Corporate social responsibility and modest earnings management jointly have weak positive effect on financial performance when financial performance is measured by Q.4.The financial performance was significantly affected by Firm size, R & D intensity, managers risk preferences, financial resources and financial leverage.5.Current financial performance is significantly related to previous period financial performance, indicating that there is a time trend for financial performance.Chapter 5 is applied research. According to the theoretical analysis and empirical test results, this chapter discusses the corporate social responsibility, earnings management and their strategic matching impact on financial performance in China.Chapter 6 is policy research. In view of the role of corporate social responsibility to suppress excessive earnings management and improve financial performance, the internal control system of corporate social responsibility in China is constructed from target, subject, object, standards and reports.Chapter 7 is summary and outlook. This chapter summarizes the main conclusions of the full paper and discusses future research finally.The Innovation of this paper is as follows:1.Previous research focus on the relation between corporate social responsibility and financial performance, this paper incorporates earnings management into the relation between corporate social responsibility and financial performance and consider them comprehensively from the point of entrenchment or alternative mechanism. In this paper, we use the stakeholder theory, stakeholder agency theory, game theory and other theories, mainly discussed based on the perspective of stakeholders.In addition, the research on the relation between corporate social responsibility and earnings management opens up new ideas for corporate social responsibility.2.The score of "corporate social responsibility ranking of State-owned listed companies in China" is used in empirical research, the index system behind score reflect the multi-dimensional structure of corporate social responsibility, reflect the interests of various stakeholders, overcomes the design flaws in previous studies. In addition, accounting and stock market data is used to measure financial performance for robustness.3.Corporate social responsibility plays an important rale in suppressing excessive earnings management and improving financial performance, but corporate social responsibility as a business philosophy need be integrated into business activities and Internal control is the tool pulled corporate social responsibility to the ground. The construction of internal control system of corporate social responsibility is inevitable, this paper finish it from target, subject, object, standards and reports.