Do Corporate Social Responsibility and Corporate Governance Constrain Earnings Management? Evidence from Indonesia
Article Sidebar
Main Article Content
Abstract
This study aims to examine the influence of Corporate Social Responsibility (CSR) and Good Corporate Governance (GCG) on earnings management in manufacturing companies operating in the basic materials and chemical sectors listed on the Indonesia Stock Exchange (IDX) during the 2019–2024 period. A quantitative explanatory research design was employed using secondary data obtained from annual reports and sustainability reports of 30 companies, resulting in 180 firm-year observations. CSR was measured using the Corporate Social Responsibility Disclosure Index (CSRDI) based on the Global Reporting Initiative (GRI Standards 2021), while GCG was represented by institutional ownership, managerial ownership, independent commissioners, and audit committees. Earnings management was measured using the Modified Jones Model. The data were analyzed using multiple linear regression after satisfying the classical assumption tests. The findings reveal that CSR and GCG both have positive and statistically significant effects on earnings management. These results indicate that higher CSR disclosure and stronger governance structures do not necessarily reduce managerial discretion in financial reporting but may instead function as legitimacy and compliance mechanisms within the institutional environment of emerging markets. The study provides practical implications for corporate managers, investors, and regulators by emphasizing the importance of strengthening the substantive implementation of governance mechanisms and improving the credibility of sustainability reporting. The originality of this study lies in providing updated empirical evidence from Indonesian manufacturing firms during the 2019–2024 period, integrating post-pandemic corporate behavior with the application of GRI Standards 2021 to explain the relationship between CSR, GCG, and earnings management.
Downloads
Article Details
Section
How to Cite
References
Alodat, A., Salleh, Z., & Hashim, H. A. (2024). Corporate governance mechanisms and real earnings management: Evidence from emerging markets. Research in International Business and Finance, 69, 102245.
Buallay, A. (2022). Sustainability reporting and firm's performance: The moderating role of ESG performance. Corporate Social Responsibility and Environmental Management, 29(5), 1315–1330.
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193–225.
Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Pitman.
García-Sánchez, I. M., Hussain, N., Martínez-Ferrero, J., & Ruiz-Barbadillo, E. (2022). Impact of sustainability reporting quality on earnings management. Business Strategy and the Environment, 31(6), 2685–2702.
Ghozali, I. (2021). Aplikasi Analisis Multivariate dengan Program IBM SPSS 26 (10th ed.). Badan Penerbit Universitas Diponegoro.
Global Reporting Initiative. (2021). GRI Universal Standards 2021. Global Reporting Initiative.
Gujarati, D. N., & Porter, D. C. (2021). Basic Econometrics (6th ed.). McGraw-Hill Education.
Habib, A., Hasan, M. M., & Al-Hadi, A. (2022). Corporate governance and earnings management: A review of the empirical evidence. Journal of International Accounting, Auditing and Taxation, 46, 100451.
Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2022). Multivariate Data Analysis (9th ed.). Cengage Learning.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39(1), 163–197.
Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39(1), 163–197.
Lassoued, N., Ben Rejeb Attia, M., & Sassi, H. (2023). Board characteristics, ESG practices and earnings quality: International evidence. International Review of Financial Analysis, 87, 102620.
Salehi, M., Zimon, G., Tarighi, H., & Gholami, A. (2021). The impact of corporate governance mechanisms on earnings management and financial reporting quality. Journal of Risk and Financial Management, 14(12), 605.
Sekaran, U., & Bougie, R. (2021). Research Methods for Business: A Skill-Building Approach (9th ed.). Wiley.
Suchman, M. C. (1995). Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, 20(3), 571–610.
Velte, P. (2023). The link between ESG performance, corporate governance and earnings management: A systematic literature review. Corporate Social Responsibility and Environmental Management, 30(2), 640–661.
Zimon, G., Tarighi, H., Salehi, M., & Hossain, M. (2023). Corporate governance, sustainability reporting and financial reporting quality: International evidence. Sustainability, 15(4), 3428.