Accounting conservatism and corporate social responsibility |
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| Institution: | 1. Institute for Financial and Accounting Studies, Xiamen University, Xiamen, Fujian, PR China;2. Manning School of Business, University of Massachusetts at Lowell, Lowell, MA 01854, United States;3. School of Management & Governance, Murdoch University, Perth, WA, Australia;1. Universidad Carlos III de Madrid, Spain;2. Universidad Autónoma de Madrid, Spain;3. IESE Business School, University of Navarra, Av. Pearson, 21, 08034 Barcelona, Spain;1. Department of Accounting, School of Business, Beijing International Studies University, Beijing 100024, China;2. Department of Accounting and Finance, College of Business, University of Wisconsin Eau Claire, WI 54701, USA;3. Department of Management, College of Business, Winona State University, MN 55987, USA;1. California State University, Los Angeles, College of Business and Economics, 5151 State University Drive, Los Angeles, CA 90032, USA;2. Texas A&M International University, A.R. Sanchez, Jr. School of Business, 5201 University Boulevard La, redo, TX 78041, USA;1. College of Business, Zayed University, Dubai, United Arab Emirates;2. Goodman School of Business, Brock University, Canada;3. ISCAE, University of Manouba, Tunisia |
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| Abstract: | In this paper, we examine whether a firm's stakeholder orientation, as manifested by its social responsibility endeavors, matters for its choice of accounting conservatism. We find that the level of conservatism in financial reporting significantly increases with socially responsible activities. This result is robust to several conservatism aspects, including market-based conservatism measure, the aggregate of R&D reserves, advertising reserves, and LIFO reserves, and accrual-based conservatism construct. Moreover, our two-stage regression results validate that conservatism is more pronounced for firms that devote more resources to social responsibility programs. Consistent with stakeholder theory, these findings indicate that CSR-oriented firms are more likely to use accounting conservatism to credibly commit to acting in the interests of stakeholders. As a whole, our results provide a novel implication that the extent of accounting conservatism can be entailed by a firm's efforts to enhance stakeholder relations. |
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