Voluntary Audits of Nonfinancial Disclosure and Earnings Quality

We investigate the association between voluntary assurance of a firm’s corporate social responsibility (CSR) report and earnings management. A concern with CSR reports is they are used to promote a socially responsible image without a meaningful commitment to CSR activities, referred to as “greenwashing”. To credibly signal the CSR report is reliable, a firm can incur the additional costs to voluntarily obtain assurance. Our results show that strong corporate governance plays a crucial role in limiting earnings management. The most consistent improvements in earnings quality occur when firms combine strong governance with CSR assurance from a non-accounting provider (NonACCT). The combination of strong governance and NonACCT assurance appears to be mutually reinforcing, suggesting a symbolic legitimacy strategy that is also substantively effective.