IMPACT OF CORPORATE SOCIAL RESPONSIBILITY ON EARNINGS MANAGEMENT: EMPIRICAL EVIDENCE FROM PAKISTAN

Earnings Management is known to be deliberate manipulation of firm’s financial data by managers. This tends to not only mislead stakeholders but also undermines the integrity of financial reporting. Whilst CSR tend to be improving social, environmental and economic conditions. This also leads to improving reputation of the business and wins trust of stakeholders. The study aims to explore the relationship between CSR and earnings management in context of Pakistani manufacturing companies. The country has a unique economic, political and cultural context which makes this study unique. The stock market of Pakistan is prone to various challenges like information asymmetry, market volatility, regulatory complexities and financial transparency. Although there is democracy in the country, however, the culture of the country is strongly influenced by the Islamic principles which emphasize on ethics and justice. These characteristics make this investigation unique and relevant. A comprehensive data of 1694 observations is used in the study. Jones model is used as a proxy for earnings management which is based on discretionary accruals. The study used control variables including return on assets and growth. The findings of the study reveal that the relationship between CSR and EM is significant but negative.