How Different Corporate Governance and Corporate Social Responsibility Impact Earnings Management

Abstract

Nowadays, companies increasingly focus on corporate concerns as they are in need of the detecting and controlling management activities in order to improve good business practices, objectivity, and integrity. This research addresses the question of the role of corporate governance and corporate social responsibility in earnings management. Previous studies confirmed that both mechanisms play an important role in limiting earnings management. In this context, the objective of the study is to test whether the effectiveness of both in constraining earnings management is the same or vary within the Eastern and Western Europe. By analyzing a sample of 1,339 firms from three developing Eastern European countries and three Western European countries over the period of 2010–2018, the findings confirm the positive impact of corporate social responsibility on the quality of the earnings. Additionally, the analysis shows that corporate governance is more effective in controlling earnings management in Western European countries.