The impact of corporate governance and corporate social responsibility on earnings management

Abstract

The post-Enron debacle has increased the awareness of and commitment towards corporate social responsibility (CSR). CSR practice is perceived as one of the ethical commitments towards stakeholders. Ethical commitment is an important precaution to avoid the recurrence of accounting failures. Earnings management practice, as one of management's non-value maximising activities, may become a precursor of the accounting failures. It can be mitigated by having effective corporate governance. However, the extant earnings management literature gives more focus to the relationship between the manager and the shareholder, hence, Jess emphasis has been given to the role of CSR. Therefore, it is imperative to investigate corporate governance, which emphasises CSR practice and its relationship with earnings management.