Moderating effects of government subsidies, media attention, and R&D on corporate social responsibility and earnings management in Chinese high-tech firms

According to the Global Sustainable Investment Review (2020), financial fraud is a key ESG concern for Chinese investors. The 2016 amendment to the "Administrative Measures for the Determination of High and New Technology Enterprises (HNTEs)" introduced tax deductions and subsidies for HNTEs, which provides more opportunities to perform earnings management (EM). This makes the relationship between corporate social responsibility (CSR) and EM in HNTEs a valuable area of study. Therefore, this research aims to analyze the CSR-EM relationship using a sample of 2,973 HNTEs from the A￾share market between 2017 and 2021. Furthermore, moderating variables such as government subsidies, media attention, and R&D expenses are employed. After conducting diagnostic tests, this study uses panel data and employs a two-way fixed effects model to obtain stable results, which also pass the robustness check. The results demonstrate that there are significant positive CSR-EM relationships, for both accrual-based EM (AEM) and real EM (REM), which supports the agency theory. It indicates that companies tend to use CSR as a shield to cover up unethical behaviors, such as EM. Meanwhile, this study uses environmental, social, and governance (ESG) score to measure the CSR behaviors, to further identify which part of the CSR actions is more related to EM. Specifically, social (S score) and governance (G score) actions for companies are positively related to AEM, while only G factors are positively related to REM. Furthermore, government subsidies, media attention, and R&D expenses have a significant moderating role in the CSR-EM correlation. This research finds that government subsidies only weaken the CSR-REM relationship, which is consistent with the stakeholder theory, suggesting that companies that receive subsidies act on behalf of all the relevant stakeholders, and reduce the extent that use CSR to shield REM actions. On the contrary, media attention poses a positive moderating effect on the CSR-EM relationship, supported by the impression management theory. It indicates that the companies receiving more media attention are more likely to perform CSR to cover up the use of EM, which helps to recover the reputation damage and also to relieve public pressure. R&D expenses only weaken the CSR-AEM correlation, which is consistent with the stakeholder theory, indicating that R&D expenses reduce the extent to which managers use CSR to shield AEM, by considering all relevant stakeholders. This research has both theoretical and practical contributions. For theoretical contribution, this research synthesizes motivations and methodologies for measuring CSR and EM in existing literature, establishing a solid scholarly foundation. It reviews theories and constructs a framework to elucidate the CSR-EM relationship, adding new variables like government subsidies, media attention, and R&D expenses as moderating factors to provide an overall theoretical framework. This research also employs more comprehensive measurements for both EM (AEM and REM) and CSR. It uses the three ESG dimensions—environmental, social, and governance to provide further details of CSR behaviors. For practical contribution, this study offers insights and recommendations for regulators, companies, and investors on the impact of government subsidies, media attention, and R&D expenses on the CSR-EM relationship.

Text 125392 - Full Text.pdf Download (2MB) Text SPE 2024 7 - Declaration Form.pdf Restricted to Repository staff only Download (719kB) Text SPE 2024 7 - Full Text.pdf Restricted to Repository staff only Download (2MB) Official URL or Download Paper: http://ethesis.upm.edu.my/id/eprint/18873

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