{'fraction_non_alphanumeric': 0.018142235123367198, 'fraction_numerical': 0.002902757619738752, 'mean_word_length': 5.661835748792271, 'pattern_counts': {'":': 0, '<': 0, '<?xml version=': 0, '>': 0, 'https://': 0, 'lorem ipsum': 0, 'www.': 0, 'xml': 0}, 'pii_count': 0, 'substrings_counts': 0, 'word_list_counts': {'cursed_substrings.json': 0, 'profanity_word_list.json': 0, 'sexual_word_list.json': 0, 'zh_pornsignals.json': 0}}
Corporate Social Responsibility and Earnings Quality in the Context of Changing Regulatory Regimes and the Financial Crisis

We examine the relationship of corporate social responsibility (CSR) with accrual-based earnings management, the frequency of reporting small positive earnings and real activities manipulation in the context of changing regulatory regimes. We find firms engaging more in CSR activities are more likely to engage in aggressive accrual-based earnings management but less likely to engage in reporting small positive earnings and real activities manipulation. Therefore, we argue that the opportunistic financial reporting hypothesis and transparent financial reporting hypothesis may not be mutually exclusive as CSR engagement can be a product of various incentives. In the context of the passage of Sarbanes Oxley Act of 2002 (SOX), we find high-CSR firms’ opportunistic financial reporting practices have been effectively constrained by improved regulatory scrutiny. Specifically, high-CSR firms are less likely to engage in accrual-based earnings management in post-SOX period. In all types of real activities manipulation, we do not find evidence of significant shift from accrual-based earnings management to real earnings management in post-SOX period. Different robustness tests and careful considerations of endogeneity confirm our main findings.