Is Corporate Social Responsibility Performance Related to Conditional Accounting Conservatism?
Accounting Horizons, Volume 34, Issue 2, 2020
54 Pages Posted: 28 Feb 2020 Last revised: 10 Aug 2020
Date Written: January 15, 2020
Abstract
We examine the relation between corporate social responsibility (CSR) performance and conditional accounting conservatism. Drawing upon the stakeholder-engaging and information-enhancing perspectives of CSR activities, we hypothesize that the demand for conditional conservatism, which primarily arises from various contracting parties’ concern about managerial opportunism and/or information asymmetry, is lower for better-performing CSR firms. Using the CSR ratings from the KLD database, we find, as predicted, a negative relation between CSR performance and conditional conservatism. These findings are robust to using a difference-in-differences research design and alternative measures of conditional conservatism. Further, cross-sectional analyses reveal that the negative association is more pronounced for firms with greater information asymmetry and stronger corporate governance. Overall, this study enhances our understanding of how a firm’s CSR engagement may relate to an important attribute of financial reporting.
Keywords: corporate social responsibility; conditional conservatism; information asymmetry
JEL Classification: M41
Suggested Citation: Suggested Citation