This paper addresses the link between earnings management (EM) and corporate social responsibility (CSR) in small and medium-sized enterprises (SMEs).
Data were collected from 317 Spanish SMEs to perform: (1) bivariate analysis between EM, CSR and some firm-factors (i.e. size, sector, sector life cycle stage, corporate age, family ownership, profitability and financial risk); and (2) multiple regression analysis for a better understanding of EM behavior and test the influence of sector life cycle stage variable.
Results emphasize the relevance of the sector life cycle stage as an explanatory factor. Firms operating in sectors that are growing or declining in terms of sales are more proactive to EM than those with consolidated sales levels. Stratified regression analysis also confirms that the stage of the industry life cycle influences the EM-CSR relationship. Only for SMEs with stable sales in maturity sectors, lower interest in EM can be significantly explained by higher CSR performance. Firms with regular sales levels show a more outstanding socially responsible commitment and are less pressured to legitimize their operational decisions and therefore show lower levels of EM involvement.
This paper makes a twofold contribution. On the one hand, it examines the relationship between EM and CSR, focusing on SMEs' context, in which EM study could be considered incipient. On the other hand, the controversial empirical evidence on the significance and sign of EM and social responsibility link could be explained by the stage of the life cycle of the sector in which each company operates.
Funding: This research is part of the project titled “Corporate Social Responsibility, SMEs, Region of Murcia” (ref.: 12003/PHCS/09) funded by the SENECA FOUNDATION, the Regional Agency for Science and Technology, through the call for “Aid for the Completion of Research Projects in Humanities and Social Sciences” Seneca Program 2009.
Martinez-Martinez, D., Andrades, J., Larrán, M., Muriel, M.J. and Lechuga Sancho, M.P. (2021), "Determinants of earnings management in Spanish SMEs and its relationship with CSR: the relevance of sector life cycle stage", Journal of Small Business and Enterprise Development, Vol. 28 No. 3, pp. 399-428. https://doi.org/10.1108/JSBED-07-2020-0257
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