Corporate Social Performance and Earnings Quality: The Role of Materiality
Journal
Journal of Environmental Law and Policy
ISSN
0931-0983
Type
journal article
Date Issued
2019-06-07
Author(s)
Abstract
This study tests whether firms with high material corporate social performance (CSP) perform better on earnings quality (EQ). I use a cross-sectional sample of 542 European firms from 27 different industries and materiality guidance from the Sustainability Accounting Standards Board (SASB).1 I develop a new measure of material and non-material CSP by recalculating Thomson Reuters ESG scores based on the guidance from SASB. The state-of-the-art measures for EQ are: accruals quality (AQ) and real earnings management (REM). In general, results indicate that firms performing well on material ESG issues (i. e., material CSP firms) have higher AQ. However, I also find that both material and non-material CSP firms engage in more REM. In robustness checks, I corroborate that, in regulated industries, both material and non-material CSP firms show higher AQ. The findings indicate that material CSP is not necessarily a reliable indicator of higher EQ. However, in regulated industries, more socially and environmentally responsible firms tend to refrain from managing their earnings. Moreover, I find that firms tend to use real earnings management as a substitute for manipulating accruals in general.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
dfv-Mediengruppe
Publisher place
Frankfurt am Main
Volume
2019
Number
02
Start page
127
End page
160
Pages
34
Subject(s)
Division(s)
Contact Email Address
daniel.fauser@unisg.ch
Eprints ID
257148