How Digitalization Moderates the Link between Corporate Social Responsibility and Earnings Quality?

Purpose – This study examines the moderating role of digital transformation in the relationship between Corporate Social Responsibility (CSR) and the managerial discretion utilized in loan loss provisioning (LLP) among Islamic Banks (IBs). Design/ Methodology / Approach – Utilizing data from 79 Islamic banks operating across 20 countries from 2012 to 2021, this empirical study employs the generalized method of moments (GMM) to estimate the regression model. Findings – The results indicate that digital transformation positively moderates the effect of corporate social responsibility (CSR) on the earnings quality of Islamic banks and provides the necessary information to assess whether a bank is well-managed, prudent in its accounting practices, and capable of sustaining its profits over time. Practical Implications – These findings offer significant insights for regulators and policymakers by underscoring the necessity for targeted regulation governing digital transformation and proactive oversight of Environmental, Social, and Governance (ESG) practices within the Islamic banking sector. Consequently, this study provides valuable information on the critical importance of simultaneously integrating technological innovation and socially responsible practices to enhance earnings quality and effectively contribute to achieving sustainable development goals. Originality/value – This research is situated within a multidisciplinary context encompassing Corporate Social Responsibility (CSR), accounting, and technological innovation, thereby reflecting the contemporary challenges faced by Islamic banks in a changing economic environment.