Literature Review on the Association between Earnings Management and Corporate Social Responsibility

This paper aims to give an overview of the existing literature on the Earnings Management (EM) and Corporate Social Responsibility (CSR) relationship in different countries. This paper reviews preceding studies concerned about EM, CSR and their relationship. Out of 23 works of literature, 11 studies found a negative relationship, 6 studies found a positive relationship, 2 studies found blended relationships in case of different situations and 4 studies found no connection between CSR and EM. Most of the results demonstrated that probably the socially responsible organizations have a negative correlation with EM practice. The types of the relationship depend on cause-effect relationship, information asymmetry, how can a company use resources, awareness on environmental issues, awareness on ethical issues, tax avoidance tendency, corporate governance practice, nature of the firm, political environment, opportunistic incentive, and stakeholder capital, manager's psychology, etc. Relationships between EM and CSR influence on earnings quality, firm performance, and firm value.


Introduction
According to the (Ning, 2009) Earnings manipulation or Earnings Management (EM) is one kind of management's action taken for reporting the desired level of earnings. EM has some features such as earnings are intentionally managed by management rather than accountant, EM includes both accounting choices and real business decisions, the objective of real EM is to affect the reported earnings or income, etc. Probably EM practice is increased when asymmetric information is more; signaling theory indicates that the symmetric data among firms and shareholders can diminish through CSR related data (Almahrog et al., 2018). Tandry et al. (2014) explained that CSR operations may be one of the stratagems to keep up the viability of the organization. CSR disclosures help to create a favorable image of the organization among investors and other stakeholders that lead to enhancing an organization's value directly or indirectly. Suteja et al. (2016) found that EM has an important and negative effect as the moderating variable on the association between profitability and CSR. They suggest a significant level of commitment in EM, which prompts expanded CSR exercises, corresponds to infirm profitability.
Several previous works of literature have endeavored to inquire about the connection between CSR and EM. Almahrog et al. (2015) reviewed the preceding paper on the association between CSR and EM and got that there are 2 standpoints. One standpoint is the negative connexion between CSR and EM. Another standpoint is the positive connexion between these 2 variables. There are no such previous articles which conduct a full and systematic review to find out how many relationships can exist between EM and CSR, which type of relationship has been found mostly and which type of procedure has been used to examine the relationship.
This paper intends to give an overview of existing literature on the association between CSR and EM. This study reviews previous literature more systematically and tries to find out how many relationships can exist between EM and CSR, which type of relationship has been found mostly and which type of procedure has been used to examine the relationship.
Different nations everywhere throughout the world, for example, Australia, Tehran, Thailand, Korea, China, Pakistan, Singapore, UK, Indonesia, USA, Spain, Nigeria, Ghana, Italy, Bangladesh, Hong Kong, India, Japan, Malaysia, Philippines and so forth led examination on the connection between EM and CSR. From the result of the past investigation, it is observed that some companies might have less involvement in EM practice when they participate in CSR activities, some firms take the help of CSR activities intentionally to conceal EM practice through impressing by CSR disclosure, some company's behavior depends on the situation. Some studies showed no relationship between EM and CSR. EM practice may also have a relationship with other factors. Academicians, policymakers, future researchers understand from this paper what types of relationship exist between EM and CSR, which type of relationship has been found mostly, causes of different types of relationship and impact of the relationship on the firm. This paper also identifies some research gaps which will be the future research area for further research.
In the rest of this paper, methods, empirical studies on the EM's, CSR relation and, lastly, conclusion are discussed.

Methodology
The method used for this paper is the literature review. Figure 1 shows the previous article selection framework for this paper. Approximately 41 articles are reviewed for this paper.  Uyagu & Dabor (2017) interpreted EM by agency theory. EM is the method through which managers (agents) want to maximize their benefit at the detriment of the organization and investors ( Principal)-it is regarded as an agency problem. As a result, wrong corporate financial information conveyed by managers (agent), shareholders make decisions based on this information, which represents agency costs generated by earnings management or manipulation. Greenfield et al. (2008) explained that from an ethical perspective, people should be more committed to their profession than to their achievement. When people supremely committed to their profession, they behave probably less opportunistically which probably leads to encouraging less likely taking part in EM practice. Lo (2008) explained that EM practice could be a harmony result whereby directors' report improved income for fulfilling their advantage. They also explained that EM closely related to earnings quality. Engaging a higher level of EM practice indicates that having a lower level of earning quality. Different studies use different proxies for EM such as real activities manipulation, discretionary accruals and the incidence of Accounting and Auditing Enforcement Releases (AAER), etc. (Kim et al., 2012). Accrual-based and Real Activities EM (RAEM) have a usual feature which is managers use their discretionary decision and deliberately attempt to distort accounting numbers to misguide stakeholders (Chun & Cho, 2017). RAEM destroy relation with stakeholder and having a negative effect on its shareholder due to reduced firm value (Cho & Chun, 2016). Discretionary accruals are tricks to decrease or misrepresent clearness of the financial statement except involving the making difference of future cash flows (Choi & Byun, 2018).

Studies Regarding Corporate Social Responsibilities (CSR)
CSR is voluntary activities that are taken by a firm to run in a socially, economically and environmentally sustainable manner (Alshannag et al., 2017). Ahmadian & Khosrowpour (2017) explained that CSR is known as different terms, for example, corporate social responsiveness, corporate citizenship, strategic philanthropy, and global citizenship, etc. Sometimes spiritual capitalism is utilized conversely; actually, it depends on the company to use it. CSR covers different issues for example corporate ethics, plant closures, human rights, environment, community and employee relations (Moir, 2001). Hamidu et al. (2015) reviewed different literature and conclude that the features of CSR are: CSR performance is not mandatory, stakeholder management, managing external factors, alignment of economic and social responsibilities, considering values and practices and pervaded CSR actions beyond philanthropy. They explained CSR by different theories for example agency, stakeholder, and legitimacy, instrumental, institutional and Islamic CSR theory. Moir (2001) explained CSR by different theories for example stakeholder, social contracts and legitimacy theory.

Studies Regarding the Association between EM and CSR
Sarbanes-Oxley Act of 2002 (SOX) contains 11 sections, was enacted as a repercussion to some major corporate blemishes such as Enron, WorldCom, etc. Cohen et al. (2008) found that companies that just gained necessary earnings benchmarks used more real EM and less accrual after SOX when contrasted with analogous companies before SOX. Their analysis also found that the raises in accrual-based EM in the period previous SOX were simultaneous within equity-based compensation. Anderson et al.  Table 2 shows the articles used for the association between EM and CSR. These studies are conducted on different counties such as Australia, Tehran, Thailand, Korea, China, Pakistan, Singapore, UK, Indonesia, US, Spain, Nigeria, Ghana, Italy, Bangladesh, Hong Kong, India, Japan, Malaysia, and Philippines, etc. from the period of 1991 to 2015. Most of the studies used regression analysis for the testing relationship between EM and CSR. These articles use various types of control variables such as firm size, leverage, financial resources, market-to-book equity ratio, ROA ratio, R&D expense, advertising expense, age, equity offering, the value of CF operation, proprietorship concentration, size of the board of commissioners and institutional proprietorship, etc.  (Gavana et al., 2017) 226 listed Italian non-financial, family, non-family companies (2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014)(2015) Estimated discretionary accruals by using the modified Jones model. Measuring CSR disclosure by content analysis. Testing hypothesis by using panel regression.
CSR is negatively and significantly related to RAEM. Good corporate governance reinforces the adverse correlation between CSR activities and RAEM. 18 (Kim et al., 2012) 23,391 firm (1991 to 2009) Computing discretionary accruals by the cross-sectional modified. Estimating the net score of CSR appraisals as qualities deduct worries in 5 social rating order of KLD evaluations datum. Testing hypothesis by using multiple regressions and logistic regression.
Expanding in CSR exercises diminish earnings smoothing. Increase in CSR exercises increment earnings aggressiveness. Practices of CSR diminish earnings losses abstinence 20 (Muttakin et al., 2015) 116 non-financial Bangladeshi firms listed on the DSE (2005)(2006)(2007)(2008)(2009) EM calculated by the level of discretionary accruals. Measuring the extent of CSR disclosures by using a checklist containing 20 items. Testing the hypothesis by using regression.
The positive relation between EM practices and CSR activities. 21 (Scholtens & Kang, 2013) 139 companies from 10 Asian countries EM practice is proxied by earnings smoothing, earnings aggressiveness. Adopting CSR score from Asian Sustainability Rating's report. Testing the relationship by using multiple regression analysis.
Relatively better CSR performed companies are involved significantly less with EM practice. 22 (Liu et al., 2017) 2369 firm (2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010) Using the unusual level of manufacturing costs, discretionary spending and operating CF, as proxies for real EM. CSR is the residual value of its total strength score deduct from the total concern score. Testing the relationship by using regression analysis.
CSR is not importantly connected to either real or accrual-based EM 23 (Amidu et al., 2016) 119 non-financial firms in Ghana (2010Ghana ( -2013 Using the Jones model to calculate EM. Estimating CSR as a spurious variable that gets the estimation of one when an association connects with or embraces CSR exercises and in any case zero. Measuring Expanding in CSR practice is related to expanding in EM. A positive and important connection has existed between EM and corporate tax avoidance. tax avoidance by the effective tax rate methodology. Examine relationships by logistic regression and methods of moments (GMM). Table 2 shows 23 studies found mixed results such as 11 studies found that negative relationships, 6 studies found a positive relationship, 2 studies found mixed relationships in case of different situations and 4 studies found no connection between EM practice and CSR activities. Most of the literature found that companies that participate in CSR functions, possibly they have little engagement EM. There is a negative association between more corporate subventions and discretionary accruals and this association is more spoken when organizations voluntarily issue CSR reports (Pyo & Lee, 2013). Some studies found that socially responsible firms had more engagement in EM. Sometimes companies engage in EM for trying to avoid tax, and then they increase CSR activities for eye washing purposes or create a positive image for stakeholders. Some studies found mixed relationships in case of different conditions such as what kinds of proxies are used for measuring EM, nature of the industry, etc. Some studies found that CSR and EM have no connection between themselves. Cause effect relationship, information asymmetry, way of using resources, awareness on environmental issues, awareness on ethical issues, tax avoidance tendency, corporate governance practice, nature of the industry, opportunistic incentive and stakeholder capital, etc. are the reasons of the different result of the relationship between EM practice and CSR. Almahrog et al. (2015) reviewed the previous literature. They found that the negative association of EM practice and CSR function is consistent with the theory of legitimacy, agency, and singles. And the positive correlation between EM and CSR based on stakeholder theory. EM, CSR and their relationship influence earnings quality, corporate performance and firm value. CSR disclosures increase the firm's value and EM practice decrease the firm's value. Hamza & Jarboui (2017) explained that the manager's psychology may have an important effect on his or her attitude toward practicing CSR activities and engaging EM practice. The manager's psychological characteristics may fix the connection between CSR and EM. They interpret the connection between these 2 variables from the perspective of legitimacy, agency, stakeholders' and singling theory base on the previous studies. Basuony et al. (2014) investigated the CSR influence on FP. The result showed that there is a significantly positive influence on CSR on company performance by using cross-sectional data. Older and larger organizations have a positive impact on FP which will tend to enhance the practice of better CSR operations. Garcia-Sanchez & Garcia-Meca (2017) interpreted that CSR operations increase the bank's income quality. FP, ethics, and reputation justify the positive impact of CSR operations on banks' income quality. The supreme level of CSR activities may provide shareholders and creditors with earnings information that permits managers to forecast future CF. Significant and negative links between CSR and earnings quality (Siueia & Wang, 2019). Tandry et al. (2014) found that EM practice and organization's size have an important positive impact on the value of the organization. Another finding is EM practice has a negative and important impact on the connection between organization value and CSR related disclosures.

Research Gap and Future Research Scope
Alongside CSR, there may be other factors that have a relation to practicing EM. Such as firm-specific factors, corporate governance (executive compensation, audit opinion), related party transactions, market liquidity, capital structure, cost of equity, information disclosure quality, etc. The future researcher can consider possible all factors that have relation in practicing EM and their findings will be more helpful for making a useful decision. From the previous literature, we find that out of 23 articles only 3 articles conducted their studies on cross countries. So, we suggest that future researchers could focus on more comparative studies in cross countries. From the previous literature, we also find that out of 23 articles only 1 article conducted their study on the financial sector. The financial sector is a strong and large sector for any country. The future researcher has the scope to work on the financial sector.

Conclusion
This study looks at the association's related articles about earnings management and corporate social responsibility. This article systematically reviews previous literature to find out how many relationship results can exist between EM & CSR, which type of relationship has been found mostly and which type of procedure has been used to evaluate the relationship. From the empirical works of literature evidence, a conclusion can be drawn that the result of the association between EM and CSR are mixed. Four types of relationships are found. Such as positive, negative, mixed relationship in case of different situations and no relationship. And we also found that most of the relationships are negative. The reason for relationship result depends on the cause-effect relationship, information asymmetry, how can firm use resources, awareness on environmental issues, awareness on ethical issues, tax avoidance tendency, corporate governance practice, nature of the industry, opportunistic incentive and stakeholder capital, manager's psychology, etc. EM and CSR relationship influence on earnings quality, firm performance, and firm value.