Do socially responsible firms always disclose high-quality earnings? Evidence from an emerging socialist economy
ISSN: 1321-7348
Article publication date: 11 May 2021
Issue publication date: 13 August 2021
Abstract
Purpose
This paper aims to investigate the linkage between corporate social responsibility (CSR) and earnings quality (EQ) in the context of Vietnam, an Asian emerging economy characterized by high growth for decades and a socialist orientation. As CSR firms are expected to have high EQ, there arise concerns that corporate managers of CSR firms may use the reputation of the firm as a protection mechanism against the cost of earnings management.
Design/methodology/approach
The study uses a unique sample of Vietnamese CSR firms listed on Hanoi and Ho Chi Minh Stock Exchanges from 2015 to 2019. Several econometric tests are conducted to investigate whether corporate managers of CSR-active firms actively engage in earnings management and reduce the firms' EQ.
Findings
The empirical results show a negative impact of CSR on EQ, meaning that, in general, corporate managers of CSR firms in Vietnam opportunistically manage earnings. This confirms the paradox of the CSR–EQ relationship. In line with an emerging strand of research in the CSR literature, the finding suggests that the agency problem arises in CSR firms where corporate managers use their managerial discretion over accrual accounting to manipulate reported earnings.
Practical implications
The finding has practical implications for market participants and policymakers in improving monitoring mechanisms and enhancing the information environment in developing capital markets.
Originality/value
This is the first study in the literature that investigates and shows the paradox of the CSR–EQ relationship in the context of Vietnam, a new emerging economy that follows socialist orientation.
Keywords
Acknowledgements
The authors are grateful to the Associate Editor, Professor Nan Zhou and the anonymous reviewers for their invaluable contributions to our manuscript. The authors also thank Dr. Eric Scott and Huy Viet Hoang for their assistance in editing the manuscript.
This work was supported by the Vietnam National Foundation for Science and Technology Development (NAFOSTED) under grant number 502.02-2019.302.
Citation
Dang, H.N., Hoang, K., Vu, V.T. and Nguyen, L.V. (2021), "Do socially responsible firms always disclose high-quality earnings? Evidence from an emerging socialist economy", Asian Review of Accounting, Vol. 29 No. 3, pp. 291-306. https://doi.org/10.1108/ARA-11-2020-0174
Publisher
:Emerald Publishing Limited
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