Moderating Effect of Earnings Management on Relationship between Corporate Social Responsibility and Financial Performance

Abstract

This study is an empirical substantiation of earnings management as a moderating variable on relationship between corporate social responsibility and financial performance. It is conducted by taking sample of 80 firms listed on Pakistan stock exchange which are selected through stratified random sampling for period of 2013 to 2017. Data was analyzed by multiple linear regression, descriptive statistics and moderated regression analysis through SPSS. Study provides evidence that CSR exerts positive impact on ROA and price to earnings ratio. After earnings management intervenes in the relationship between CSR and ROA, then significant impact of CSR on ROA decreases. Earnings management does not moderate the relationship relating CSR and PE ratio. Market measures are not directly influenced by CSR and earnings management activities. Findings suggested that when higher earnings management initiates CSR practices, these further worsen the FP, so stakeholders should be cautious about these activities.