Corporate Social Responsibility and Earnings Management

Abstract: This study aims to investigate the relationship between CSR and constraint of earnings management on Swedish firms listed on OMX Stockholm. Earnings management is estimated using two accrual-based models to detect discretionary accruals. The first hypothesis explores whether a continuous CSR score is correlated with earnings management. Secondly, a model using a binary variable capturing disclosure of CSR is constructed exploring the second hypothesis concerning the relationship between CSR disclosure and earnings management. The results contradict current studies in the U.S. as we find no significant evidence for neither of the hypotheses. This indicates an absence of such a relationship in Sweden, which could be attributed to the underlying cultural and legal differences. These results can be attributed to the two primary perspectives, CSR as a moral imperative or managerial opportunism, offsetting a potential effect. Concluding, no reliable relationship between firms' CSR score nor disclosure of CSR and the ability to efficiently produce transparent financial reports through constraining earnings management can be drawn.