The relationship between corporate social responsibility, financial performance, and earnings management

Organizations strive to solve the challenges of the society as well as remain profitable. Corporate social responsibility (CSR) is one of the strategies used by most organizations to ensure sustainability and profitability; it is also a way of giving back to the society. Despite the increased in-depth studies on CSR, my extensive research revealed that there is a gap in knowledge on relationship between CSR, financial performance, and earnings management. The existing studies do not provide a detailed experimental and hypothetical investigation of the topic.

Having specific interest on tech companies in China due to their importance to the growth and development of the economy, I realized that focusing my study on this area would not just be of interest to me but also of great benefit to the tech companies in China, which forms the purpose and main objective of my research. Hypothesis of the study based on my assumptions were that: 1.CSR has a positive influence on the financial performance and 2: A higher levels of earnings management is related to an increased negative effect on the relationship between financial performance and CSR. From this hypothesis, I was able to form my research objectives and questions that guided the study.

My study was based on secondary data where I researched on different scholarly journals and academic papers due to the extensive nature of the research and the need to save on cost and time. The articles were well cited and referenced in the literature review to ensure integrity of my work. The study adopted qualitative methodology that enabled for collection and analysis of the data to come up with the final report.

The sections of the literature review that formed the integral part of the study were: Understanding the Dimensions of CSR, Theoretical Orientation, Relationship between Earnings Management (EM) and CSR, and Understanding the Relationship between Financial Performance (FP) and CSR. Extensive studies were done in this areas taking into perspective world and local views, and used both current and past literature that were well selected to represent the objectives of my research.

Data Analysis was a vital part of my research, as I had to give the collected qualitative data meaning based on the objectives of my study. The process of data interpretation was hectic and required accuracy as there were possibility of overlap in the interpretation and analysis as a means of achieving suitable conclusion. I applied the relevant principles in qualitative data analysis to get efficient outcomes. The study adopted a Thematic Analysis As an approach to qualitative analysis, it focused on the classification and the presentation of patterns and themes in relation to the data. It provided an opportunity for the understanding of the issue from wider perspective. The success of the method was based on the precise relationship between the concept and a comparison of themes in replicated data, and coding of the variety of collected data.

The situations of thematic data analysis involved Data interpretation, selection on when to use Deductive and Inductive approaches. Analysis of two different phased data, which was adopted in this study as it allowed me to highlight the similarities and the differences within the dataset.

The research process took place in four stages Data Reduction, which  was done in three phases, involving tabulation of data, highlight of shared themes and finally, breaking of data into much smaller segments. Reliability and Validity of themes ensured credibility of the data through evaluation of the themes in order to ensure the representation in the text. The data  was displayed  in form of figures, maps of categories, narrative texts, quotations, charts and graphs which linked and compared the information to reach suitable conclusions and Data drawing and conclusion involved the noting of any patterns, and the grouping of categories.

Study findings

1.      There is a relationship between institutional investors and CSR activities.

2.      Bigger organizations get more consideration from the general population and are under public strain and pressure to show social obligation.

3.      Corporate financial performance influences the fiscal capability to attempt programs for CSR.

Analysis

1.      Organizations are increasingly disclosing their financial reports to the stakeholders, based on the stakeholder’s theory, this play a vital role in the success of the companies.

2.       Socially mindful firms are centered around expanding benefits as well as on cultivating future associations with stakeholders. Since the stakeholders control assets that are basic for the presence of the association.

3.      CSR exercises identified with winning administration rehearse impact organizations' productivity.

4.      Market uncertainty influence the stakeholder’s view of the company’ CSR.

5.      CSR is an essential driver of upgrading money related performance.

Conclusion: There is a connection between CSR, financial performance, and earnings management based on the findings of this study.