Corporate social responsibility and corporate fraud

Maretno Agus Harjoto (Graziadio School of Business and Management, Pepperdine University, Malibu, California, USA)

Social Responsibility Journal

ISSN: 1747-1117

Publication date: 2 October 2017

Abstract

Purpose

This study aims to examine the impact of corporate culture, measured by corporate social responsibility (CSR), on the likelihood and severity of corporate fraud. CSR literature indicates that corporate managers are moral actors and are obliged to exercise their discretionary decisions according to their moral standards. Based on the moral development theory, this study argues that higher managers’ ethical values reflected by higher CSR activities are less likely to commit fraud and have lower severity of fraud.

Design/methodology/approach

This study argues that at the firm level, corporate culture can be measured by firms’ CSR activities. Using probit, match-pair, propensity matching and Heckman regressions on a sample of 152 criminal corporate fraud cases in the USA from the US Department of Justice (DOJ) during 2000 and 2010, this study empirically examines the impact of CSR, CSR strengths and concerns scores on the likelihood and the severity of corporate fraud.

Findings

Firms with higher CSR and CSR strengths (concerns) scores have lower (higher) likelihood and lower (higher) severity of corporate fraud. This study finds that firms with higher community, employee, environment and product-related CSR have lower likelihood of fraud, and firms with higher diversity, employee, environment and product-related CSR have lower fraud severity.

Practical implications

Establishing a positive corporate ethical culture is essential to curb the outbreak of corporate fraud that threatens our societal norms. The findings also shed some light for investors, corporate board of directors and regulators to consider CSR as a reflection of top managers’ moral values that is negatively related to the occurrence and severity of corporate fraud.

Social implications

Strengthening moral values among top executives and employees in corporations by encouraging CSR activities aid our society to alleviate future outbreak of epidemic problem for corporate fraud.

Originality/value

This study brings a new perspective that there is a relationship between corporate ethical culture within an organization, measured by CSR activities, and corporate fraud based on the cognitive moral development theory in organization.

Keywords

Acknowledgements

The author thanks three anonymous referees and the editor for their constructive suggestions and comments. The author acknowledges the financial support and release time from the 2015-2017 Denney Academic Chair from the Denney Endowment for this research project.

Citation

Harjoto, M. (2017), "Corporate social responsibility and corporate fraud", Social Responsibility Journal, Vol. 13 No. 4, pp. 762-779. https://doi.org/10.1108/SRJ-09-2016-0166

Download as .RIS

Publisher

:

Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

Please note you might not have access to this content

You may be able to access this content by login via Shibboleth, Open Athens or with your Emerald account.
If you would like to contact us about accessing this content, click the button and fill out the form.
To rent this content from Deepdyve, please click the button.