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This study examines whether corporate social responsibility (CSR) mitigates or exacerbates managerial short-termism. Using earnings management (EM) as a proxy for managerial short-termism, we find that socially responsible firms engage in less accrual-based and real EM activities. This finding supports the argument that socially responsible firms n...
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Context 1
... Panel A of Table 2, we describe summary statistics of variables for the whole sample. The mean (37.56) and median (34.66) ...
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Citations
... Dalam beberapa penelitian menujukan bahwa keberadaan dewan wanita (Ghaleb et al., 2021;Maglio et al., 2020;Ongsakul et al.,2020) dan CSR (Dimitropoulos, 2022;Gonçalves et al., 2022;Gong & Ho, 2021) (Klein, 2003). Di sebagian besar skandal yang terjadi memperlihatkan bahwa manajer menyalahgunakaan kekuasaan mereka dalam melakukan pengambilan keputusan dengan melebih-lebihkan laporan keuangan yang berlandaskan untuk mewujudkan kepentingan pribadi, namun dalam penelitian memperlihatkan bahwa perempuan lebih menolak risiko daripada laki-laki dan lebih konservatif dalam membuat keputusan (Saona et al., 2019). ...
... Earnings management mewakili biaya agensi, perusahaan yang melakukan kegiatan CSR dan cenderung membatasi praktik earnings management karena peran etisnya serta direksi dan anggotanya dapat menjadi faktor penting dalam membatasi kecenderungan manajer untuk melakukan aktivitas earnings management (Maglio et al., 2020). Hal ini kemudian memunculkan penelitian terkait hubungan CSR dan earnings management, berdasarkan hasil peneliti terdahulu ditemukan hubungan yang signifikan antara CSR dan earnings management (Dimitropoulos, 2022;Gonçalves et al., 2022;Gong & Ho, 2021). Berdasarkan hal tesebut, penelitian ini dilakukan dengan tujuan untuk mengkaji hubungan dewan direksi wanita dan CSR terhadap earnings management sehingga dapat memperoleh pemahaman dan gambaran umum. ...
... Kumala & Siregar (2021) mengungkapkan bahwa perusahaan yang telah banyak mengeluarkan sumber daya untuk melakukan CSR akan bertindak lebih etis dan lebih sedikit melakukan kegiatan earnings management. Hal ini kemudian didukung oleh penelitian lain yang menyatakan bahwa meningkatkan manajemen yang berorientasi pada pemangku kepentingan melalui fungsi CSR akan membantu melemahkan praktik earnings management(Dimitropoulos, 2022;Ehsan et al., 2022;Gong & Ho, 2021). Selain itu,Gonçalves et al (2022) mengemukakan sebuah perspektif etis bahwa perusahaan yang bertanggung jawab secara sosial menghadirkan keuangan yang lebih dapat dipercaya berkelanjutan, hal ini dapat mengurangi penilaian risiko dari mitra bisnis dan para pemangku kepentingan. ...
This study aims to gather insights related to the relationship between gender diversity and CSR on earnings management actions in companies. The method used to obtain research results is library research, using credible and indexed sources on Scopus and Sinta. The results of this study indicate that first, gender diversity as measured by the presence of women on the composition of the board of directors can create conditions for management that are more ethical, intolerant and suppress opportunistic actions that encourage management to carry out earnings management. Second, CSR is an ethical act to blame the company in a transparent manner for stakeholders and is a form of corporate reputation for stakeholders thereby suppressing earnings management actions in the company.
... CEOs engage in CSR to improve economic performance, fortify their positions within the organization, and win over more stakeholders, according to Gong & Ho, (2021); (Klettner et al., 2014) claim that corporate governance has an impact on outcomes that both financial and non-financial. In this study, corporate governance was measured by the councils of commissioners and the council of independent commissioners. ...
One of the primary contributors to global climate change that may threaten human survival is carbon emissions. As a result, businesses must consider how their actions including carbon emissions affect the environment. Carbon emissions are one of the main causes of global climate change, which can endanger human survival. Therefore, companies need to pay attention to the impact of their activities on the environment, including carbon emissions. Disclosure of carbon emissions by companies is becoming increasingly important because it can affect the company's image in the eyes of the public and investors. The study aims to analyze the impact of environmental performance, corporate governance, and financial performance on the disclosure of carbon emissions by manufacturing companies listed on the Indonesian Stock Exchange for the period 2020–2022. This research uses purposive sampling. The research data obtained came from the Indonesian Stock Exchange and the company's website, and data analysis techniques were used using regression analysis. The results of this study showed that environmental performance and financial performance affected carbon disclosure, while corporate governance variables did not affect carbon emissions.
... Many studies examining managerial short-termism have relied on "common-sense allusions, small-sample anecdotes or proxy variables that measure time indirectly" (Souder et al., 2016, p. 1). Other studies have relied on quantitative publicly disclosed financial information to measure firm actions related to short-termism, including such measures as earnings management, discretionary accruals, earnings guidance and asset durability of new capital expenditures (e.g., Bhojraj et al., 2009;Bushee, 1998;Gong & Ho, 2021;Souder & Bromiley, 2012). However, theoretical research in social psychology and sociology describes short-termism as a cognition, which affects managers' decisions and behaviors (DesJardine & Bansal, 2019). ...
... Accordingly, we ran a two-stage-least squares (2SLS) instrumental variable regression (e.g., Larcker & Rusticus, 2010;Smulowitz et al., 2019). As instruments, we used the industry average of managerial short-termism (Oehmichen et al., 2021;Gong & Ho, 2021) and level of unemployment in the state in which the firm is headquartered. These instruments are likely to be correlated with our main independent variable (i.e., managerial short-termism), but not correlated with firm specific behaviors (e.g., CSP) except through our independent variable. ...
While commentators have long decried managerial short-termism, the deleterious effects of managerial short-termism on corporate social performance (CSP), and how to ameliorate those negative effects, remain underexplored. Specifically, due to the difficulty of unobtrusively measuring what is fundamentally a cognition in managers, empirical evidence at the organizational level of managerial short-termism’s effect on CSP is relatively sparse. Here, we measure managerial short-termism by content analyzing firms’ publicly filed annual reports (10-Ks). Using a combined dataset for 1,665 U.S. firms for the period 2000–2012, we show that managerial short-termism is negatively associated with CSP. However, we also show that this effect can be reduced through increased external monitoring by important stakeholders who value CSP. Specifically, we show that increasing dedicated institutional ownership and increasing analyst coverage both decrease the negative effect of managerial short-termism on CSP. We contribute to theory by predicting and showing the negative effect of managerial short-termism on CSP, and how external monitoring can reduce its deleterious effects. We contribute to practice by showing how this managerial cognition can be identified, and how its negative effects can be ameliorated, at the organizational level.
... Some other studies have researched the defaulting firms to discuss their distress factor for developing a predictive model. Gao et al. (2019) used the size, book-to-market ratio, or momentum factor proxies for estimating the distress risk to explain the cross-sectional variations among distressed firms in the Chinese stock market. In a study conducted among the six largest countries in the ASEAN, Dinh et al. (2021) predicted the corporate financial distress of these markets based on the Merton model (1974). ...
... For example, Lopez (2004) found that average asset correlation decreased the probability of default. Gao et al. (2019) used the size and the book-to-market ratio effects to capture the financial risks in the Chinese stock market. Nadarajah et al. (2020) measured the control variables of firm size, market-to-book value, and profitability to find stock liquidity and default risk across several countries. ...
... liquidity uncertainty in crisis periods, Lang and Maffett (2011) distinguished the local market and the foreign-listed firms trading in the different U.S. stock markets. Consequently, we set firm size (Lopez, 2004;Bushman et al., 2004;Zeng et al., 2012;Nadarajah et al., 2020;Zhang et al., 2022) as a proxy using market capitalization (SIZE) and the market-to-book value calculated by a ratio of the book value of equity to the market value of assets (BM) (Pevzner et al., 2015;Gao et al., 2019;Kabir et al., 2020;Nadarajah et al., 2020). The return on assets (ROA) represents a firm's profitability (Kim and Zhang, 2016;Brogaard et al., 2017;Kabir et al., 2020). ...
... We get CSR data from Rankins Corporate Social Responsibility Ratings (RKS) [94,121,122]. The original CSR score ranges from 1 to 100. ...
... The higher the score, the better the CSR performance. In this paper, the score is the natural logarithm of the total score of the CSR performance [121]. ...
... Table 2 reports the results from estimating Formula 3, where we introduce control variables in a stepwise way. Column (1) shows that an increase in managerial short-termism leads to a drop in firm CSR performance, which is consistent with previous findings [121]. Our estimates in Column (2) add financial indicators into the specification, and we obtain the robustness results. ...
Using data on Chinese A-share listed firms from 2008 to 2017, we explore how corporate social responsibility (CSR) performance is affected by managerial short-termism and what factors influence the association between the two. First, by employing text analysis in conjunction with machine learning, we construct a new managerial short-termism indicator. Using panel fixed models, we find that managerial short-termism has an adverse impact on CSR performance, and the results are consistent in a series of robustness checks. The heterogeneous test results show that the negative effect is significant only for firms with lower internal corporate governance, for firms in less competitive industries, for firms with less analyst attention, and for state-owned enterprises (SOEs). Additionally, a better institutional environment weakens the negative impact of managerial short-termism on CSR performance. The findings shed light on policy implications for emerging countries.
... Per the upper echelons theory, the experiences, values, cognition, and personalities of management influence strategy choices and outcomes of organizations [4,5]. Managerial myopia, defined as the personal qualities of managers' perceptions of time, is a critical issue in the corporate finance literature, as it challenges the premise of maximizing shareholder interests and influences business conduct [6][7][8]. While previous studies have examined the economic consequences of managerial myopia, the debate on the impact of managerial short-termism on a firm's long-term investment behavior continues. ...
A corporation’s ability to uphold valuable long-term investments is a critical component of the business’s sustainability. Combining the views of the upper echelons theory and agency theory, this study argues that myopic managerial behavior is detrimental to a firm’s long-term investment. We construct an indicator assessing managerial myopia based on the textual analysis approach. The moderating effect analysis suggested that the negative impact of managerial myopia on long-term investments is lessened with an increase in institutional investor ownership and analyst coverage. In addition, we found that managerial myopia negatively correlates with capital expenditures and R&D investments. Furthermore, the cross-sectional analysis suggested that the correlation between managerial myopia and long-term investment is stronger among firms with higher industry competition, poor performance levels, and in non-state-owned enterprises.
... To address possible endogeneity issues, we included the explanatory variables lagged by one period in the model. We regressed them using a systematic GMM (Generalised Method of Moments, Gong & Ho, 2021) approach. The model uses one period lags of the explanatory and explained variables and the above level and difference variables as instrumental variables. ...
With supply chain integration and R&D becoming important methods for transformation and up-gradation, enterprises must understand the relationship between supply chain structure, industry competition, and R&D expenditure. All A-share listed companies in the Shanghai Stock Exchange and the Shenzhen Stock Exchange from 2008 to 2015 are used as samples, and a significant neg-ative relationship between supplier concentration and firms’ R&D expenditure is obtained. The study further investigates how this negative impact differs among firms with varying market power. After the addition of interactive items to the regression model, it was discovered that the weaker the market power of a firm (indicating weaker monopoly power and more intense industry competi-tion), the stronger the negative impact of supplier concentration on R&D investment. This paper provides empirical evidence to support the supply chain analysis and the market power analysis of enterprises’ R&D investment.
... For example, a firm might structure transactions with the primary goal of influencing its financial statements and misleading shareholders who rely on the accounting numbers to gauge the firm's operational performance. A fundamental driver of REM is the pressure on managers to deliver short-term results and increase their firm's valuation (Gong & Ho, 2018;Gu et al., 2020). Matsunaga and Park (2001) examine pressure on managers to achieve earnings benchmarks, and Bartov et al. (2002) examine short-term performance under capital market pressure. ...
... To measure managerial short-termism, this study follows Gong and Ho (2018), Gu et al. (2020), and Huang and Ho (2020) and combines three measures to create two indices of REM. This study uses two aggregate measures of REM (i.e., REM1 and REM2) to capture the total REM in which a firm engages in a given fiscal year. ...
Information asymmetry between managers and outside investors creates agency problems and impedes efficient capital allocation. Information disclosure is critical in alleviating information asymmetry in capital markets. This study investigates the effect of information asymmetry on managerial short-termism by examining information disclosure ratings (IDRs). Using real earnings management as a proxy for managerial short-termism, our analysis of a sample of Chinese A-share companies during 2001–2018 indicates that high IDRs mitigate managerial short-termism. The results also indicate that the effect of IDRs in reducing managerial short-termism is driven mainly by stock liquidity. This conclusion holds after consideration of endogeneity and application of two-stage least-squares and generalized method of moments methods, adjustment of the definition of IDRs, consideration of alternative proxies for managerial short-termism, and control for firm characteristics that might affect the extent of managerial short-termism. This study also examines the effects within three subsamples: companies listed on the Shenzhen Stock Exchange main board, small and medium enterprise board, and growth enterprise market board. IDRs substantially reduce managerial short-termism among firms listed on all three boards. These findings indicate that enterprises have corrected previous internal governance problems, and IDRs have helped to improve internal governance through stock liquidity. Therefore, external supervision also helps to reduce the agency problem of managerial short-termism.
... A similar conclusion was achieved by Lui et al. (Liu et al. 2017), who determined that companies with a deep CSR system show a more aggressive EM behavior. However, there is controversy about whether only the mandatory CSR impacts on the EM or the voluntary CSR affects EM (Gong and Ho 2021). ...
This review aims to study the knowledge development and research dissemination on the influence of Corporate Social Responsibility (CSR) on Earnings Management through a social network approach using bibliometric review. A systematic bibliometric review was carried out on 329 papers obtained from the Clarivate Analytics Web of Science (WoS) Core Collection database. The data were analysed by year, journal, author, institution, country, affiliation, subject area and term analysis. The results reveal the growing interest of researchers in studying the impact of CSR. The USA and China dominate publication production but substantial is a large number of authors from more than 50 countries around the world. The results also show that being prolific does not imply being influential in this area. The keyword patterns showed that there are some interesting potential areas of study in this topic. The findings of this paper provide insight to the research on the analysis of the influence of CSR on Earnings Management. The most important findings consist of a number of gaps in the literature, such as gender diversity, voluntary disclosure of information, existence of an audit committee, among others, that allow for future fields of research to improve the analysis of the influence of CSR in EM. This research should also prove helpful to managers, owners and auditors. This is the first bibliometric review developed on this topic and it can be extrapolated to any place in the world.
... This is what we call the endogeneity effect. The standard approach to deal with the endogeneity issue is to apply Blundell and Bond (1998)'s two-step GMM estimation approach (Nekhili et al., 2018;Gong and Ho, 2018). Thus, it is asserted that the businesses' market valuation at period t depends necessarily on the market-to-book ratio at period tÀ1, as well as the commitment of these companies in the social and ethical practices. ...
Abstract
Purpose
This study aims to examine the potential effect of integrating social and ethical practices into strategy on the market valuation of environmental, social and governance (ESG) businesses using the moderating effect of green innovation.
Design/methodology/approach
The sample used consisted of 523 international firms listed on the ESG index and headquartered in North America and Western Europe, forming an unbalanced panel of 7,845 observations spanning the period 2005–2019. The authors run a fixed-effects panel regression model using the Thomson Reuters ASSET4 to test the relationship between societal and ethical practices and the stock market value creation. Similarly, as an extension of the research, this paper exploits two robustness analyzes. The authors tested the dynamic dimension of the data set through the generalized moment method and the effect of the legal system.
Findings
Evidence reveals a significant positive relationship between societal and ethical practices and businesses’ market valuation. The empirical results indicate that societal and ethical strengths increase firm value with the moderating effect of green innovation and weaknesses reduce it. The results found with the dynamic dimension of the data set indicate the existence of continuity between firm values over time.
Research limitations/implications
Given the long study period, many firms with missing data were eliminated. To avoid the small sample size, countries with few observations were included, which led to an uneven distribution between observations per country.
Practical implications
Findings from this paper can help ESG firms to consider their future growth opportunities in a context where the approach of business ethics occupies a central position in business valuation.
Originality/value
This study is the only study that provides ESG companies with seven different nationalities with evidence for the effect of social and ethical practices regarding market valuation. This paper is also relevant as it addresses the relationship between social effectiveness and financial efficiency, as well as the dynamic effect of this relationship.
