Corporate social responsibility and the quality of financial reporting: evidence on classification shifting

Unofficial AI-generated summary based on the public title and abstract. Not an official translation.

🔬研究者:This paper provides empirical evidence on the relationship between CSR and classification shifting, expanding the literature on earnings management determinants.

🏢実務担当者:Corporate sustainability teams can use these findings to argue that strong CSR practices enhance financial reporting credibility, potentially reducing audit and compliance costs.

🏛政策担当者:Regulators should note that CSR-oriented firms may have better financial reporting quality, supporting the case for integrated reporting frameworks.

This paper aims to exa mine the relationship between sustainability and earnings management in the European countries. Specifically, the authors investigate the impact of corporate social responsibility (CSR) on classification shifting, which occurs when management intentionally misclassifies recurring expenses as nonrecurring to inflate perceptions of core earnings. The authors empirically investigate a sample of 4,523 observations between 2010 and 2022. The CSR score is collected from the ASSET4 database, while the other data are obtained from Eikon Refinitiv database. The findings provide evidence of a significant positive relationship between non-recurring expenses (NREC) and unexpected core earnings in both the first and second samples. This suggests that certain companies may have engaged in the practice of shifting recurring expenses to nonrecurring items, artificially inflating their core profits. In particular, the study focuses on examining the interaction between the ESG score and nonrecurring expenses. Interestingly, the authors discovered that the coefficient of this interaction is significantly negative. This implies that classification shifting is less prevalent among firms that demonstrate a commitment to social responsibility. Overall, the results indicate that socially responsible firms exhibit lower levels of classification shifting compared to firms that do not prioritize social responsibility. To the best of the authors’ knowledge, this is the first study to examine the relationship between CSR and classification shifting in the European context. It expands the literature by identifying CSR commitment as a determinant of misclassification behavior across all earnings management strategies, including those most resistant to conventional audit. Unlike previous studies that focused on established moderators such as financial reporting incentives and corporate governance, this study further proposes a dual integrative framework in which agency theory and stakeholder theory function as complementary rather than competing perspectives, explicating the conditions under which CSR limits or facilitates earnings manipulation.

• semanticscholar https://doi.org/10.1108/cg-03-2025-0144first seen 2026-07-18 08:19:08