THE EFFECT OF CSR ON EARNINGS MANAGEMENT: MODERATING ROLE OF BOARD DIVERSITY IN PAKISTANI LISTED FIRMS

Abstract

This study examines Corporate Social Responsibility (CSR) and Earnings Management (EM) relationship with moderating role of board diversity of two types, i.e., female and foreign directorships on board. Content analysis is used for measurement of CSR through a data sample of 274 firms from the non-financial sector listed on Pakistan stock exchange for years 2012, 2014, and 2015. However, EM is measured over three discretionary accruals models Jones, Modified Jones, and Kothari models. Based on the results of descriptive analysis, it has been found that the level of CSR reporting has been improved in the post-CSR guidelines period as compared to the pre-CSR guidelines period. While results of regression analysis report that the higher CSR level of an organization the lesser would be the EM activities. This study suggests managers to concentrate upon CSR and board diversity for better earning management. Impact of board diversity on relationship as a moderator makes this study more novel because, as far as our research and previous literature is concerned, there has been very limited literature on this topic.