Corporate social responsibility and earnings management: The moderating effect of CEO personality traits

Abstract

ABSTRACT The debate surrounding the influence of corporate social responsibility (CSR) on earnings management (EM) remains inconclusive, featuring two opposing perspectives. The opportunistic viewpoint suggests that CEOs use CSR as a tool for manipulating earnings, employing it as a strategic shield to conceal opportunistic behavior. Conversely, the ethical viewpoint posits that CSR aims to cultivate trust with stakeholders, promoting long‐term performance while avoiding EM. This paper aims to address this question by considering the role of psychological traits. Specifically, we examine the relationship between CSR and EM and investigate whether psychological traits moderate this relationship. Using a sample of 318 firms from the S&P 500 index from 2015 to 2019, the results show that CSR has a positive impact on EM, indicating that CSR creates more favorable conditions for EM and supporting the opportunistic behavior hypothesis. Furthermore, CEO narcissism moderates the relationship between CSR and EM, influencing an increase in income. Finally, CEO hubris positively moderates the relationship between CSR and both the absolute value of discretionary accruals and positive discretionary accruals. Our findings lead us to the conclusion that narcissistic or hubristic CEOs reinforce the opportunistic behavior hypothesis.

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