Does Board of Directors Independence Behave Opportunistically or Ethically? Study Corporation Social Responsibility and Earning Management in Indonesia

  • Muhammad Taufik Universitas Internasional Batam, Batam, Kepulauan Riau
  • Gideon Benhans Universitas Internasional Batam, Batam, Kepulauan Riau
DOI: https://doi.org/10.35838/jrap.2021.008.02.18
Abstract views: 194 | PDF downloads: 175
Keywords: corporation social responsibility, earning management, board of directors independence, ethic, opportunis

Abstract

ABSTRACT

This paper explores the opportunistic issues of EM and ethical issues of CSR where we aim to examine the relationship between CSR and EM and involve the role of BOD independence. Investigation of the relationship using corporate social performance theory where the research sample is a company that publishes sustainability reporting - GRI index for the period 2016 to 2019 in Indonesia. CSR does not affect EM, on the contrary, BOD independence has a positive and significant effect on EM. That is, BOD independence behaves opportunistically. Another finding is that BOD independence does not strengthen or weaken the relationship between CSR and EM. Therefore, despite being opportunistic, BOD independence does not use CSR as a reflection of ethical values to cover EM practices. This paper contributes to showing that BOD independence has 2 characters, namely opportunist on the one hand and ethical on the other.

References

Aaken, D. Van, & Buchner, F. (2020). Religion and CSR: a systematic literature review. Journal of Business Economics, 90(5–6), 917–945. https://doi.org/10.1007/s11573-020-00977-z

Abdullah, S. N., & Ismail, K. N. I. K. (2016). Women directors, family ownership and earnings management in Malaysia. Asian Review of Accounting, 24(4), 525–550. https://doi.org/10.1108/ARA-07-2015-0067

Abdullah, S. N., & Nasir, N. M. (2004). Accrual management and the independence of the boards of directors and audit committees. IIUM Journal of Economics and Management, 12(1), 1–31.

Almahrog, Y., Ali Aribi, Z., & Arun, T. (2018). Earnings management and corporate social responsibility: UK evidence. Journal of Financial Reporting and Accounting, 16(2), 311–332. https://doi.org/10.1108/JFRA-11-2016-0092

Amodu, N. (2018). Corporate social responsibility as catalyst for development: Prospects and challenges in Nigeria. Developments in Corporate Governance and Responsibility, 24, 207–228. https://doi.org/10.1108/S2043-052320180000014010

Arvidsson, S. (2014). Corporate social responsibility and stock market actors: A comprehensive study. Social Responsibility Journal, 10(2), 210–225. https://doi.org/10.1108/SRJ-08-2012-0099

Ayu, M., Lindrianasari, Gamayuni, R. R., & Urbański, M. (2020). The impact of environmental and social costs disclosure on financial performance mediating by earning management. Polish Journal of Management Studies, 21(2), 74–86. https://doi.org/10.17512/pjms.2020.21.2.06

Barkemeyer, R., Preuss, L., & Lee, L. (2015). On the effectiveness of private transnational governance regimes-Evaluating corporate sustainability reporting according to the Global Reporting Initiative. Journal of World Business, 50(2), 312–325. https://doi.org/10.1016/j.jwb.2014.10.008

Bowen, H. R., Bowen, P. G., & Gond, J. P. (2013). Social responsibilities of the businessman. In Social Responsibilities of the Businessman. https://doi.org/10.2307/3708003

Buertey, S., Sun, E. J., Lee, J. S., & Hwang, J. (2020). Corporate social responsibility and earnings management: The moderating effect of corporate governance mechanisms. Corporate Social Responsibility and Environmental Management. https://doi.org/10.1002/csr.1803

Chatterjee, C. (2020). Board quality and earnings management: Evidence from India. Global Business Review, 21(5), 1302–1324. https://doi.org/10.1177/0972150919856958

Cho, E., & Chun, S. (2016). Corporate social responsibility, real activities earnings management, and corporate governance: evidence from Korea. Asia-Pacific Journal of Accounting and Economics, 23(4), 400–431. https://doi.org/10.1080/16081625.2015.1047005

Choi, B. B., Lee, D., & Park, Y. (2013). Corporate social responsibility, corporate governance and earnings quality: Evidence from Korea. Corporate Governance: An International Review, 21(5), 447–467. https://doi.org/10.1111/corg.12033

Deegan, C. (2014). An overview of legitimacy theory as applied within the social and environmental accounting literature. In Sustainability Accounting and Accountability: Second Edition (pp. 248–272).

Del Mar Alonso-Almeida, M., Llach, J., & Marimon, F. (2014). A closer look at the “Global Reporting Initiative” sustainability reporting as a tool to implement environmental and social policies: A worldwide sector analysis. Corporate Social Responsibility and Environmental Management, 21(6), 318–335. https://doi.org/10.1002/csr.1318

Dimitropoulos, P. E. (2020). Corporate social responsibility and earnings management in the EU: a panel data analysis approach. Social Responsibility Journal, April. https://doi.org/10.1108/SRJ-04-2020-0156

Ehsan, S., Tariq, A., Nazir, M. S., Shabbir, M. S., Shabbir, R., Lopez, L. B., & Ullah, W. (2021). Nexus between corporate social responsibility and earnings management: Sustainable or opportunistic. Managerial and Decision Economics, June. https://doi.org/10.1002/mde.3396

Gras-Gil, E., Palacios Manzano, M., & Hernández Fernández, J. (2016). Investigating the relationship between corporate social responsibility and earnings management: Evidence from Spain. BRQ Business Research Quarterly, 19(4), 289–299. https://doi.org/10.1016/j.brq.2016.02.002

Gümrah, A., Güngör Tanç, Ş., & Tanç, A. (2019). Scoring of sustainability reports with gri-g4 economic, environmental, and social performance indicators: A research on the companies preparing sustainability report in turkey. Accounting, Finance, Sustainability, Governance and Fraud, I, 133–151. https://doi.org/10.1007/978-981-13-3203-6_8

Habbash, M., & Haddad, L. (2020). The impact of corporate social responsibility on earnings management practices: evidence from Saudi Arabia. Social Responsibility Journal, 16(8), 1073–1085. https://doi.org/10.1108/SRJ-09-2018-0232

Idris, M., Abu Siam, Y., & Nassar, M. (2018). Board independence, earnings management and the moderating effect of family ownership in Jordan. Management and Marketing, 13(2), 985–994. https://doi.org/10.2478/mmcks-2018-0017

Jaggi, B., Leung, S., & Gul, F. (2009). Family control, board independence and earnings management: Evidence based on Hong Kong firms. Journal of Accounting and Public Policy, 28(4), 281–300. https://doi.org/10.1016/j.jaccpubpol.2009.06.002

Jordaan, L. A., de Klerk, M., & de Villiers, C. J. (2018). Corporate social responsibility and earnings management of South African companies. South African Journal of Economic and Management Sciences, 21(1), 1–13. https://doi.org/10.4102/sajems.v21i1.1849

Kapoor, N., & Goel, S. (2017). Board characteristics, firm profitability and earnings management: Evidence from India. Australian Accounting Review, 27(2), 180–194. https://doi.org/10.1111/auar.12144

Katmon, N., & Farooque, O. Al. (2017). Exploring the impact of internal corporate governance on the relation between disclosure quality and earnings management in the UK listed companies. Journal of Business Ethics, 142(2), 345–367. https://doi.org/10.1007/s10551-015-2752-8

Khalil, M., & Ozkan, A. (2016). Board independence, audit quality and earnings management: Evidence from Egypt. Journal of Emerging Market Finance, 15(1), 84–118. https://doi.org/10.1177/0972652715623701

Kim, Y., Park, M. S., & Wier, B. (2012). Is earnings quality associated with corporate social responsibility? Accounting Review. https://doi.org/10.2308/accr-10209

Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39(1), 163–197. https://doi.org/10.1016/j.jacceco.2004.11.002

Kumala, R., & Siregar, S. V. (2021). Corporate social responsibility, family ownership and earnings management: the case of Indonesia. Social Responsibility Journal, 17(1), 69–86. https://doi.org/10.1108/SRJ-09-2016-0156

Latif, K. F., & Sajjad, A. (2018). Measuring corporate social responsibility: A critical review of survey instruments. Corporate Social Responsibility and Environmental Management, 25(6), 1174–1197. https://doi.org/10.1002/csr.1630

Mahrani, M., & Soewarno, N. (2018). The effect of good corporate governance mechanism and corporate social responsibility on financial performance with earnings management as mediating variable. Asian Journal of Accounting Research, 3(1), 41–60. https://doi.org/10.1108/ajar-06-2018-0008

Mansour, W., & Jlassi, M. (2014). The effect of religion on financial and investing decisions. In H. kent Baker & V. Ricciardi (Eds.), Investor Behavior: The Psychology of Financial Planning and Investing (Issue 2011, pp. 135–151). John Wiley & Sons, Inc. https://doi.org/10.1002/9781118813454.ch8

Muttakin, M. B., Khan, A., & Azim, M. I. (2015). Corporate social responsibility disclosures and earnings quality: Are they a reflection of managers’ opportunistic behavior? Managerial Auditing Journal, 30(3), 277–298. https://doi.org/10.1108/MAJ-02-2014-0997

O’Donovan, G. (2002). Environmental disclosures in the annual report: Extending the applicability and predictive power of legitimacy theory. Accounting, Auditing & Accountability Journal, 15(3), 344–371. https://doi.org/10.1108/09513570210435870

Obigbemi, I. F., Omolehinwa, E. O., Mukoro, D. O., Ben-Caleb, E., & Olusanmi, O. A. (2016). Earnings management and board structure: Evidence from Nigeria. SAGE Open, 6(3). https://doi.org/10.1177/2158244016667992

Orazalin, N. (2020). Board gender diversity, corporate governance, and earnings management: Evidence from an emerging market. Gender in Management, 35(1), 37–60. https://doi.org/10.1108/GM-03-2018-0027

Qa`dan, M. B. A., & Suwaidan, M. S. (2019). Board composition, ownership structure and corporate social responsibility disclosure: the case of Jordan. Social Responsibility Journal, 15(1), 28–46. https://doi.org/10.1108/SRJ-11-2017-0225

Scholtens, B., & Kang, F. C. (2013). Corporate social responsibility and earnings management: Evidence from Asian economies. Corporate Social Responsibility and Environmental Management, 20(2), 95–112. https://doi.org/10.1002/csr.1286

Suyono, E., & Farooque, O. Al. (2018). Do governance mechanisms deter earnings management and promote corporate social responsibility? Accounting Research Journal, 31(3), 479–495. https://doi.org/10.1108/ARJ-09-2015-0117

Taufik, M., & William, T. (2021). Does BOC`s characteristics moderate the effect of corporate social responsibility on performance ? Evidence of Indonesian mining companies. Journal of Applied Accounting and Taxation, 6(2), 137–146.

Wan Mohammad, W. M., & Wasiuzzaman, S. (2019). Effect of audit committee independence, board ethnicity and family ownership on earnings management in Malaysia. Journal of Accounting in Emerging Economies, 10(1), 74–99. https://doi.org/10.1108/JAEE-01-2019-0001

Wilburn, K., & Wilburn, R. (2013). Using Global Reporting Initiative indicators for CSR programs. Journal of Global Responsibility, 4(1), 62–75. https://doi.org/10.1108/20412561311324078

Published
2021-12-26
How to Cite
Taufik, M., & Benhans, G. (2021). Does Board of Directors Independence Behave Opportunistically or Ethically? Study Corporation Social Responsibility and Earning Management in Indonesia. Jurnal Riset Akuntansi & Perpajakan (JRAP), 8(02), 224 - 234. https://doi.org/10.35838/jrap.2021.008.02.18
Section
Articles