Abstract:
Purpose – This study aims to investigate the impact of mandatory corporate social responsibility (CSR)
spending legislation on the earnings management strategies of firms.
Design/methodology/approach – The authors use panel data regression models to analyze the data for
this study. This study covers the post-legislation period, which spans over five years from the financial year
ending March 2015 to the financial year ending March 2019.
Findings – The results show that firms manipulate accounting measures to avoid breaching the cut-off
criteria for mandatory CSR. In particular, the results show that firms operating around the operating revenue
threshold misclassify operating revenue as non-operating revenue. In contrast, firms operating around the net
worth and net profit thresholds do downward real and accrual earnings management. These results are
consistent with several robustness measures.
Originality/value – To the best of the authors’ knowledge, this is the first study that examines the impact
of mandatory CSR spending on earnings management.