Solving the choice puzzle: Financial and non-financial stakeholders preferences in corporate disclosures
-
DOIhttp://dx.doi.org/10.21511/imfi.20(4).2023.34
-
Article InfoVolume 20 2023, Issue #4, pp. 434-451
- 220 Views
-
53 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The paper delves into the relationship between accounting conservatism, valued by financial stakeholders, and corporate social performance (CSP), esteemed by non-financial stakeholders. This study assesses the potential impact of financial reporting practices, specifically accounting conservatism, on a firm’s CSP activities, which has significant implications for diverse stakeholders. Employing an accrual-based proxy for accounting conservatism and the social contribution value per share from the Shanghai Stock Exchange as a proxy for CSP, the study utilizes a sample of 25,490 year-company observations of A-share listed companies on China’s Shanghai and Shenzhen stock exchanges spanning from 2008 to 2019. Empirical findings indicate a negative correlation between accounting conservatism and CSP. The study suggests that higher levels of social performance are associated with reduced conservatism in financial reporting, indicating that firms prioritize CSP over the interests of financial stakeholders by adopting less conservative financial reporting policies. Aligned with agency theory, these results underscore that socially responsible firms are less inclined to employ accounting conservatism in reporting earnings. This study establishes a connection between firms’ unconventional and less traditional activities, such as CSP, and conservative financial reporting, offering valuable insights for investors, analysts, and regulators.
Acknowledgment
This paper is co-funded by the European Union through the European Education and Culture Executive Agency (EACEA) within the project “Embracing EU corporate social responsibility: challenges and opportunities of business-society bonds transformation in Ukraine” – 101094100 – EECORE – ERASMUS-JMO-2022-HEI-TCH-RSCH-UA-IBA / ERASMUS-JMO-2022-HEI-TCHRSCH https://eecore.snau.edu.ua/
- Keywords
-
JEL Classification (Paper profile tab)G34, M14, M41
-
References56
-
Tables11
-
Figures0
-
- Table 1. Sample selection procedure, year-company observations
- Table 2. Linkage between components of SCVPS and components of stakeholder theory
- Table 3. Descriptive statistics
- Table 4. Correlation analysis
- Table 5. Accounting conservatism and corporate social performance
- Table 6. Effect of CSR performance on accounting conservatism of firms – robustness control I
- Table A1. Prior studies on the relationship between accounting conservatism and CSR
- Table A2. Description of the variables used in the study
- Table A3. Effect of CSR performance on accounting conservatism of firms – robustness control II
- Table A4. Effect of CSR performance on accounting conservatism of firms – robustness control IIІ
- Table A5. Effect of CSR performance on accounting conservatism of firms – robustness control ІV
-
- Abdalwahab, M. A.-R., & ALkabbji, R. F. (2020). Impact of External Auditing Quality and Audit Committees on Accounting Conservatism and the Performance of Industrial Firms Listed at the Amman Stock Exchange. International Journal of Financial Research, 11(4), 556.
- Ahmed, A. S., & Duellman, S. (2007). Accounting conservatism and board of director characteristics: An empirical analysis. Journal of Accounting and Economics, 43(2-3), 411-437.
- Ahmed, A. S., & Duellman, S. (2011). Evidence on the role of accounting conservatism in monitoring managers’ investment decisions. Accounting & Finance, 51(3), 609-633.
- Allison, G. T. (2020). China Is Now the World’s Largest Economy. We Shouldn’t Be Shocked. The National Interest.
- Almahrog, Y., Ali Aribi, Z., & Arun, T. (2018). Earnings management and corporate social responsibility: UK evidence. Journal of Financial Reporting and Accounting, 16(2), 311-332.
- Anagnostopoulou, S. C., Tsekrekos, A. E., & Voulgaris, G. (2020). Accounting conservatism and corporate social responsibility. The British Accounting Review, 100942.
- Atkins, B. (2006). Is Corporate Social Responsibility Responsible? Forbes.Com.
- Bae, K.-H., El Ghoul, S., Gong, Z. (Jason), & Guedhami, O. (2021). Does CSR matter in times of crisis? Evidence from the COVID-19 pandemic. Journal of Corporate Finance, 67, 101876.
- Basu, S. (1997). The conservatism principle and the asymmetric timeliness of earnings. Journal of Accounting and Economics, 24(1), 3-37.
- Beaver, W. H., & Ryan, S. G. (2000). Biases and Lags in Book Value and Their Effects on the Ability of the Book-to-Market Ratio to Predict Book Return on Equity. Journal of Accounting Research, 38(1), 127.
- Biddle, G. C., Ma, M. L. Z., & Song, F. M. (2020). Accounting Conservatism and Bankruptcy Risk. Journal of Accounting, Auditing & Finance, 0148558X2093424.
- Burke, Q. L., Chen, P.-C., & Lobo, G. J. (2020). Is Corporate Social Responsibility Performance Related to Conditional Accounting Conservatism? Accounting Horizons, 34(2), 19-40.
- Carroll, A. (1979). A three-dimensional conceptual model of corporate performance. The Academy of Management Review, 4(4), 497-505.
- Chen, R. C. Y., & Hung, S. (2021). Exploring the impact of corporate social responsibility on real earning management and discretionary accruals. Corporate Social Responsibility and Environmental Management, 28(1), 333-351.
- Cheng, C.-L., & Kung, F.-H. (2016). The effects of mandatory corporate social responsibility policy on accounting conservatism. Review of Accounting and Finance, 15(1), 2-20.
- Chih, H.-L., Shen, C.-H., & Kang, F.-C. (2008). Corporate Social Responsibility, Investor Protection, and Earnings Management: Some International Evidence. Journal of Business Ethics, 79(1-2), 179-198.
- Choi, B. B., Lee, D., & Park, Y. (2013). Corporate Social Responsibility, Corporate Governance and Earnings Quality: Evidence from Korea. Corporate Governance: An International Review, 21(5), 447-467.
- Elshandidy, T., & Hassanein, A. (2014). Do IFRS and board of directors’ independence affect accounting conservatism? Applied Financial Economics, 24(16), 1091-1102.
- Francis, R. N., Harrast, S., Mattingly, J., & Olsen, L. (2013). The Relation between Accounting Conservatism and Corporate Social Performance: An Empirical Investigation. Business and Society Review, 118(2), 193-222.
- García Lara, J. M., García Osma, B., & Penalva, F. (2016). Accounting conservatism and firm investment efficiency. Journal of Accounting and Economics, 61(1), 221-238.
- García-Sánchez, I.-M., Hussain, N., Khan, S.-A., & Martínez-Ferrero, J. (2021). Do Markets Punish or Reward Corporate Social Responsibility Decoupling? Business & Society, 60(6), 1431-1467.
- Gargouri, R. M., Shabou, R., & Francoeur, C. (2010). The relationship between corporate social performance and earnings management. Canadian Journal of Administrative Sciences / Revue Canadienne Des Sciences de l’Administration, 27(4), 320-334.
- Garriga, E., & Melé, D. (2004a). Corporate Social Responsibility Theories: Mapping the Territory. Journal of Business Ethics, 53(1/2), 51-71.
- Garriga, E., & Melé, D. (2004b). Corporate Social Responsibility Theories: Mapping the Territory. Journal of Business Ethics, 53(1/2), 51-71.
- Givoly, D., & Hayn, C. (2000). The changing time-series properties of earnings, cash flows and accruals: Has financial reporting become more conservative? Journal of Accounting and Economics, 29(3), 287-320.
- Goss, A., & Roberts, G. S. (2011). The impact of corporate social responsibility on the cost of bank loans. Journal of Banking & Finance, 35(7), 1794-1810.
- Guo, J., Huang, P., & Zhang, Y. (2020). Accounting conservatism and corporate social responsibility. Advances in Accounting, 51, 100501.
- Ikram, M., Zhang, Q., Sroufe, R., & Ferasso, M. (2020). The Social Dimensions of Corporate Sustainability: An Integrative Framework Including COVID-19 Insights. Sustainability, 12(20), 8747.
- Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 14(3), 8-21.
- Jones, T. M. (1995). Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics. The Academy of Management Review, 20(2), 404-437.
- Kim, Y., Park, M. S., & Wier, B. (2012). Is Earnings Quality Associated with Corporate Social Responsibility? The Accounting Review, 87(3), 761-796.
- LaFond, R., & Watts, R. L. (2008). The Information Role of Conservatism. The Accounting Review, 83(2), 447-478.
- Leuz, C., Nanda, D., & Wysocki, P. D. (2003). Earnings management and investor protection: an international comparison. Journal of Financial Economics, 69(3), 505-527.
- Lobo, G. J., Robin, A., & Wu, K. (2020). Share repurchases and accounting conservatism. Review of Quantitative Finance and Accounting, 54(2), 699-733.
- Lu, T., Sivaramakrishnan, K., Wang, Y., & Yu, L. (2021). The Real Effects of Mandatory Corporate Social Responsibility Reporting in China. Production and Operations Management, 30(5), 1493-1516.
- Makarenko, I., Sukhonos, V., V. Zhuravlyova, I., Legenchuk, S., & Szołno, O. (2020). Sustainability reporting assessment for quality and compliance: the case of Ukrainian banks’ management reports. Banks and Bank Systems, 15(2), 117-129.
- Martinez-Martinez, D., Andrades, J., Larrán, M., Muriel, M. J., & 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, 28(3), 399-428.
- Mora, A., & Walker, M. (2015). The implications of research on accounting conservatism for accounting standard setting. Accounting and Business Research, 45(5), 620-650.
- Noronha, C., Guan, J., & Fan, J. (2018). Firm value and social contribution with the interaction of corporate governance. Sustainability Accounting, Management and Policy Journal, 9(2), 165-200.
- Park, B.-J. (2021). Corporate Social and Financial Performance: The Role of Firm Life Cycle in Business Groups. Sustainability, 13(13), 7445.
- Pasko, O., Balla, I., Levytska, I., & Semenyshena, N. (2021). Accountability on Sustainability in Central and Eastern Europe: An Empirical Assessment of Sustainability-Related Assurance. Comparative Economic Research. Central and Eastern Europe, 24(3), 27-52.
- Pasko, O., Chen, F., Birchenko, N., & Ryzhikova, N. (2021). Corporate Governance Attributes and Accounting Conservatism: Evidence from China. Studies in Business and Economics, 16(3), 173-189.
- Pasko, O., Chen, F., Kuts, T., Sharko, I., & Ryzhikova, N. (2022). Sustainability reporting nexus to corporate governance in scholarly literature. Environmental Economics, 13(1), 61-78.
- Pasko, O., Chen, F., Tkal, Y., Hordiyenko, M., Nakisko, O., & Horkovenko, I. (2021). Do Converged to IFRS National Standards and Corporate Governance Attributes Affect Accounting Conservatism? Evidence from China. Scientific Papers of the University of Pardubice, Series D: Faculty of Economics and Administration, 29(2).
- Pasko, O., Marenych, T., Diachenko, O., Levytska, I., & Balla, I. (2021). Stakeholder engagement in sustainability reporting: the case study of Ukrainian public agricultural companies. Agricultural and Resource Economics: International Scientific E-Journal, 58-80.
- Pasko, O., Zhang, L., Tuzhyk, K., Proskurina, N., & Gryn, V. (2021). Do sustainability reporting conduct and corporate governance attributes relate? Empirical evidence from China. Problems and Perspectives in Management, 19(4), 110-123.
- Shanghai Stock Exchange. (2008). Notice on Strengthening the Social Responsibility of Listed Companies and Issuing the “Guidelines for Environmental Information Disclosure of Listed Companies on the Shanghai Stock Exchange.”
- Sokil, O., Zvezdov, D., Zhuk, V., Kucherkova, S., & Sakhno, L. (2020). Social and environmental costs: the impact of accounting and analytical support on enterprises’ sustainable development in Germany and Ukraine. Economic Annals-ХХI, 181(1-2), 124-136.
- Tashman, P., Marano, V., & Kostova, T. (2019). Walking the walk or talking the talk? Corporate social responsibility decoupling in emerging market multinationals. Journal of International Business Studies, 50(2), 153-171.
- Tirole, J. (2001). Corporate Governance. Econometrica, 69(1), 1-35.
- Watts, R. L. (2003a). Conservatism in Accounting Part I: Explanations and Implications. Accounting Horizons, 17(3), 207-221.
- Watts, R. L. (2003b). Conservatism in Accounting Part II: Evidence and Research Opportunities. Accounting Horizons, 17(4), 287-301.
- Watts, R. L., & Zuo, L. (2016). Understanding Practice and Institutions: A Historical Perspective. Accounting Horizons, 30(3), 409-423.
- Xia, D., & Zhu, S. (2009). Corporate Governance and Accounting Conservatism in China. China Journal of Accounting Research, 2(2), 81-108.
- Zhang, J. (2008). The contracting benefits of accounting conservatism to lenders and borrowers. Journal of Accounting and Economics, 45(1), 27-54.
- Zhang, R., Noronha, C., & Guan, J. (2020). The social value generation perspective of corporate performance measurement. Social Responsibility Journal, ahead-of-p(ahead-of-print).