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Determinants of earnings management in Spanish SMEs and its relationship with CSR: the relevance of sector life cycle stage

2021; Emerald Publishing Limited; Volume: 28; Issue: 3 Linguagem: Inglês

10.1108/jsbed-07-2020-0257

1758-7840

Domingo Martínez-Martínez, Francisco Javier Andrades Peña, Manuel Larrán Jorge, María José Muriel de los Reyes, María Paula Lechuga Sancho,

Auditing, Earnings Management, Governance

Purpose This paper addresses the link between earnings management (EM) and corporate social responsibility (CSR) in small and medium-sized enterprises (SMEs). Design/methodology/approach Data were collected from 317 Spanish SMEs to perform: (1) bivariate analysis between EM, CSR and some firm-factors (i.e. size, sector, sector life cycle stage, corporate age, family ownership, profitability and financial risk); and (2) multiple regression analysis for a better understanding of EM behavior and test the influence of sector life cycle stage variable. Findings Results emphasize the relevance of the sector life cycle stage as an explanatory factor. Firms operating in sectors that are growing or declining in terms of sales are more proactive to EM than those with consolidated sales levels. Stratified regression analysis also confirms that the stage of the industry life cycle influences the EM-CSR relationship. Only for SMEs with stable sales in maturity sectors, lower interest in EM can be significantly explained by higher CSR performance. Firms with regular sales levels show a more outstanding socially responsible commitment and are less pressured to legitimize their operational decisions and therefore show lower levels of EM involvement. Originality/value This paper makes a twofold contribution. On the one hand, it examines the relationship between EM and CSR, focusing on SMEs' context, in which EM study could be considered incipient. On the other hand, the controversial empirical evidence on the significance and sign of EM and social responsibility link could be explained by the stage of the life cycle of the sector in which each company operates.