Testing the relationship between earnings management and corporate social responsibility: empirical approach in Finnish context

Abstract

This master thesis examines the relationship between corporate social responsibility (CSR) and earnings management (EM) in the context of Finnish listed companies. Both CSR and EM are important topics integrally related to the modern corporate environment. Examination of the association between these subject areas has been scholars’ object of interest for over the decade. Nevertheless, the prior research has failed to reach consensus regarding the nature of this relationship. This thesis aimed to provide additional empirical evidence related to this controversy and thus aimed to attempt to contribute this dispute’s resolution. Namely, this study has intended to examine how companies’ CSR activity influences the level of EM using three different EM proxies.

This study is a quantitative research conducted using ordinary least squared regression. Financial data for construction of EM proxies has been obtained from DataStream database, whereas the data used as measure of companies’ CSR performance has been collected from Thomson Reuters Eikon database. Using a sample consisting of Finnish listed companies for the fiscal years 2013 until 2018, this study has not found statistically significant relationship between earnings management and corporate social responsibility.