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Earnings managment - does corporate sustainability performance matter?


Hummel, Katrin; Ising, Peter (2015). Earnings managment - does corporate sustainability performance matter? UZH Business Working Paper Series 358, University of Zurich.

Abstract

This study investigates the relationship between corporate sustainability performance and earnings management practices in a European setting. We measure earnings management based on discretionary accruals (cash flow approach) and real activity management. Corporate sustainability performance is a multi-dimensional construct that is measured based on data provided by the CSRHub database. Employing a European sample of 1,426 firm-year observations, our results reveal a negative relationship between corporate sustainability performance and earnings management activities. This finding supports the notion that a broad and integrated approach of sustainability performance constrains the use of earnings management practices. The results are consistent with recent research on U.S. non-financial companies (Kim et al. 2012), indicating the application of similar principles in U.S. and European settings. Additional analyses reveal that this relationship is particularly applicable to the environmental and community dimensions of sustainability, whereas we find only limited empirical evidence on this relationship for the employee dimension. Taken together, our study provides further evidence regarding the relevance of corporate sustainability in the financial context.

Abstract

This study investigates the relationship between corporate sustainability performance and earnings management practices in a European setting. We measure earnings management based on discretionary accruals (cash flow approach) and real activity management. Corporate sustainability performance is a multi-dimensional construct that is measured based on data provided by the CSRHub database. Employing a European sample of 1,426 firm-year observations, our results reveal a negative relationship between corporate sustainability performance and earnings management activities. This finding supports the notion that a broad and integrated approach of sustainability performance constrains the use of earnings management practices. The results are consistent with recent research on U.S. non-financial companies (Kim et al. 2012), indicating the application of similar principles in U.S. and European settings. Additional analyses reveal that this relationship is particularly applicable to the environmental and community dimensions of sustainability, whereas we find only limited empirical evidence on this relationship for the employee dimension. Taken together, our study provides further evidence regarding the relevance of corporate sustainability in the financial context.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Language:English
Date:1 October 2015
Deposited On:10 Sep 2019 15:53
Last Modified:25 Sep 2019 00:45
Series Name:UZH Business Working Paper Series
Number of Pages:21
ISSN:2296-0422
OA Status:Green
Other Identification Number:merlin-id:18190

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