Corporate Social Responsibility and Financial Fraud : The Moderating Effects of Governance and Religiosity

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Detail(s)

Original languageEnglish
Pages (from-to)557–576
Journal / PublicationJournal of Business Ethics
Volume170
Issue number3
Online published20 Dec 2019
Publication statusPublished - May 2021

Abstract

This study investigates how managers in firms that have committed fraud strategically use socially responsible activities in coordination with their fraudulent financial reporting practices. Using propensity score matching to select control firms that have a similar probability of fraud in the pre-fraud benchmark period, we find that the corporate social responsibility (CSR) performance of fraudulent firms in the fraud-committing period is significantly higher compared with the CSR performance of non-fraudulent control firms during this period, and compared with that during their own pre-fraud benchmark periods. This higher CSR performance by fraudulent firms is achieved by means of investing in both stakeholder and third-party CSR categories and by improving in CSR strengths. Furthermore, the increase in CSR performance is more pronounced for fraudulent firms with a weak governance environment, and for firms located in high-religiosity states. Overall, our findings suggest that fraudulent firms strategically adjust their CSR performance to coordinate with their fraudulent financial activities.

Research Area(s)

  • Corporate governance, Corporate image and reputation, Corporate social responsibility, Financial fraud, Religiosity