Corporate Social Responsibility and Earnings Quality in the Context of Changing Regulatory Regimes and the Financial Crisis

Zhangfan Cao, William Rees, Tatiana Rodionova

Research output: Journal PublicationArticlepeer-review


The objective of this paper is to examine the relationship between corporate social responsibility (CSR) and earnings management in the context of changing regulatory regimes and the financial crisis. Using a sample of 18,472 U.S. firm-year observations that represents more than 2,500 individual firms over the period of 1993 to 2018, we employ several panel-data regression models and find that firms with higher CSR engagement have higher discretionary accruals before the Sarbanes Oxley Act of 2002 (SOX) and lower thereafter. Moreover, the relationship between CSR and discretionary accruals is moderated by the managerial equity incentives. Firms practicing CSR with low incentive alignment are more likely to have high discretionary accruals and receive more regulatory scrutiny from SOX. In contrast, we find high-CSR firms engage less in costly real earnings management in both pre- and post-SOX periods. Using the 2008-2009 financial crisis as an external shock via the difference-in-difference method (DiD), our results show that high-CSR firms engage less in earnings management during the financial crisis. The implications of our findings suggest that when facing the trade-off between different types of earnings management, high-CSR firms tend to engage in less costly earnings management. Our study contributes to the burgeoning literature on the influence of CSR on financial reporting practices by examining the relationship under various contexts and highlighting the importance of the recent regulatory framework for financial reporting quality.

Original languageEnglish
Pages (from-to)124-137
Number of pages14
JournalRevista de Contabilidad-Spanish Accounting Review
Issue number1
Publication statusPublished - 2023
Externally publishedYes


  • CSR
  • Discretionary accruals
  • Financial Crisis
  • Real earnings management
  • Sarbanes Oxley Act

ASJC Scopus subject areas

  • Accounting


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