The effects of mandatory corporate social responsibility policy on accounting conservatism
Abstract
Purpose
This paper aims to investigate whether government-mandated corporate social responsibility (CSR) engenders conservative financial reporting in emerging markets. It is expected that CSR plays a substitute role for governance mechanisms in reducing information asymmetry.
Design/methodology/approach
The C-Score developed by Khan and Watts (2007) was adopted to measure the degree of firm-year specific accounting conservatism. This study uses the CSR rating established by the Shanghai National Accounting Institute.
Findings
Empirical evidence indicates that the government-mandated CSR policy may be sufficient to induce conservative financial reporting. However, due perhaps to political affiliations, the evidence to support this claim is weaker for state-owned enterprises (SOEs) than for non-SOEs.
Originality/value
The findings provide a deeper understanding of the potential role of CSR in firms. The results also provide evidence on the dynamics between CSR activities and the reporting behavior of managers. These findings have important implications for investors, analysts and regulators.
Keywords
Citation
Cheng, C.-L. and Kung, F.-H. (2016), "The effects of mandatory corporate social responsibility policy on accounting conservatism", Review of Accounting and Finance, Vol. 15 No. 1, pp. 2-20. https://doi.org/10.1108/RAF-12-2014-0135
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited