Purpose This study aims to investigate the relationship between corporate social responsibility (CSR) engagement and tax avoidance, exploring whether firms engage in "organized hypocrisy" - leveraging CSR initiatives to maintain legitimacy while simultaneously engaging in aggressive tax planning. The study further examines the moderating effects of institutional environments and industry characteristics.Design/methodology/approach Using a panel data set of firms from 12 countries over the period 2006-2019, this study applies fixed-effects regression models to assess the relationship between CSR engagement and tax avoidance. Multiple robustness tests, including alternative measures of CSR and tax avoidance as well as two-stage least squares (2SLS) estimation, ensure the reliability of results.Findings The authors find that higher CSR engagement is associated with greater tax avoidance. The relationship is shaped by institutional and industry contexts: it is stronger for firms in liberal market economies and in environmentally sensitive industries. These findings remain robust to alternative measures of CSR and tax avoidance and to tests including or excluding US firms.Practical implications The findings have implications for policymakers, regulators and standard setters, highlighting the need to enhance transparency in CSR disclosures and corporate tax policies. Strengthening regulatory frameworks may help curb opportunistic CSR practices used to justify aggressive tax planning.Social implications The study underscores the potential societal consequences of firms using CSR engagement to obscure tax avoidance strategies. By diverting financial resources from public funds to shareholders, such practices may undermine government revenues needed for essential public services and infrastructure development.Originality/value This study contributes novel empirical evidence to the literature by demonstrating how firms simultaneously engage in CSR and tax avoidance, extending the concept of organized hypocrisy to corporate tax policy. By incorporating cross-country data, it provides a broader institutional perspective on the relationship between CSR and tax behavior.

PurposeThis paper aims to examine the relationship between accruals quality (AQ) and investment efficiency, with a particular focus on the moderating role of corporate social responsibility (CSR) and the influence of country-level enforcement strength.Design/methodology/approachUsing a cross-country data set comprising firms from 21 countries, the study uses regression analyses to assess the effect of AQ on investment efficiency and the moderating impact of CSR and the influence of country-level enforcement strength. Robustness checks are conducted using CSR pillars, the Heckman two-stage model and two-stage least squares (2SLS) estimation.FindingsThe results indicate that higher AQ significantly enhances investment efficiency by mitigating information asymmetry and facilitating optimal capital allocation. Moreover, CSR strengthens this positive relationship by enhancing stakeholder trust and improving access to capital, yielding an additional improvement of approximately 5% in investment efficiency. The interaction between AQ and CSR is particularly pronounced in countries with weaker enforcement environments, where CSR serves as a compensatory mechanism for institutional deficiencies.Originality/valueThis study contributes to the literature on financial reporting quality, CSR and investment efficiency by emphasizing the complementary roles of financial (i.e. AQ) and non-financial (i.e. CSR) information. It offers valuable insights for corporate managers, investors and policymakers, particularly in jurisdictions with weak regulatory institutions, highlighting the role of CSR in enhancing the credibility of financial reporting and promoting sustainable investment practices.

This study investigates the interplay between corporate social responsibility (CSR) and firm leverage as determinants of earnings management in Saudi Arabia, a context shaped by Islamic principles and evolving corporate governance norms. Using a dataset for Saudi listed firms between 2017 and 2022, this study finds that although CSR engagement is associated with higher earnings management, suggesting strategic, rather than purely ethical motivations, low leverage is linked to lower earnings manipulation, highlighting the mitigating role of financial pressure. The interaction between CSR and leverage is negatively correlated with earnings management, indicating that these factors jointly strengthen ethical and religious imperatives in shaping financial behavior. The findings contribute to the literature by providing empirical evidence on the dual impact of CSR and leverage on earnings management. It reveals that cultural frameworks can function as informal regulatory mechanisms, reducing earnings manipulation. This research has implications for policy makers and investors seeking to align corporate governance with ethical and religious principles, emphasizing the need to consider the interplay of CSR and leverage in promoting financial reporting quality.

This study investigates three possible explanations of the link between Corporate Social Responsibility (CSR) expenditures and future financial performance for family firms: (i) CSR is an investment leading to better future financial performance, (ii) it is a form of firms' charity, or (iii) it is undertaken when anticipating stronger future financial performance. It also examines whether the institutional environments have effects on this association. We show that family firms in coordinated market economies are characterised by stronger stakeholder relationship and CSR expenditures are undertaken in the current period to legitimate the business operations, as CSR will be financially rewarded in the future. However, firms in liberal market economies are motived by shareholder view to protect investors' interests and avoid uncertainty and risks, and CSR expenditures are undertaken by linking them to anticipated future corporate performance, hereby corporate accountability reporting can assist outsiders to infer insiders' private information about future financial prospects.

Purpose This study aims to examine how capital structure influences earnings management for firms in the Saudi market, which is influenced by an Islamic environment that discourages excessive borrowing. Design/methodology/approach This study uses a data set that covers the period from 2013 to 2020 for firms listed on the Saudi Stock Exchange (Tadawul) and uses panel data regression models to test the impact of capital structure on earnings management. Findings The empirical results reveal that earnings manipulation is less common among firms that have less debt, which implies that firms in the Saudi market face high scrutiny to maintain lower leverage to meet the investment requirements of stakeholders based on religious status, which in turn reduces information asymmetry and constrains opportunistic behaviour in managing earnings. Practical implications This study provides insights for regulators, investors, and managers on the role of religion in shaping capital structure and monitoring financial reporting practices. This study recognises that firms’ decision-making can be explained by non-economic motives, such as religion, which can serve as a less costly external mechanism to alleviate agency costs compared to other economic motives. Originality/value This study contributes to the literature by exploring how capital structure and earnings management relate to a distinctive and unique Islamic context that remains largely unexamined. This context allows us to investigate this issue by examining how the Islamic environment, which is not driven by economic or legal reasons, affects managers’ choices of capital structure and earnings management. This study reveals how a strong religious setting can shape firms’ choices regarding capital structure and financial reporting practices.

This study investigates the association between family ownership and the level of CSR disclosure, and to what extent country-level institutional differences and level of industry risk differences influence this association. Using a sample of firms domiciled across 14 European countries for the period from 2010 to 2017, the empirical results show that there is a negative association between family ownership and CSR disclosure. The study also indicates that both institutional environments and the industry risk have influence on the association between family ownership and CSR disclosure. In particular, family-owned firms domiciled in coordinated market economies demonstrate a higher degree of CSR disclosure in comparison to their counterparts operating in liberal market economies. Further, the results show various levels of associations between family ownership and CSR disclosure, as well as social and environmental disclosures, for family-owned firms domiciled in the sub-categories of CMEs. In terms of industry risk, family-owned firms operating in high-risk industries have higher scores of CSR compared to firms in low-risk industries. Moreover, family-owned firms that operate in high-risk industries have higher scores of environmental disclosure, compared to social disclosure, in order to increase their legitimacy on environmental issues.

PurposeThis study aims to investigate the effect of financial-tax reporting conformity jurisdictions on the association between corporate social responsibility (CSR) and aggressive tax avoidance.Design/methodology/approachUsing a sample comprising firms domiciled in Europe for the period 2008–2016, this study uses regression analysis to test the impact of financial-tax reporting conformity jurisdictions on the association between CSR and aggressive tax avoidance.FindingsThe empirical results show that there is a positive association between CSR and tax avoidance, and firms headquartered in low financial-tax reporting conformity jurisdictions are more likely to engage in CSR to hedge against the potential negative consequences of aggressive tax-avoidance practices as compared to firms domiciled in countries with high level of financial-tax reporting conformity.Practical implicationsThis study confirms Sikka’s (2010, 2013) view of “organised hypocrisy” act committed by firms to cover their socially irresponsible activities of aggressive tax avoidance by engaging in CSR. Results have implication for various regulatory bodies and investors in that the type of financial-tax conformity does impact the link between CSR and tax avoidance, and based on that, CSR firms may engage in CSR to overcome any negative reactions that could be caused as a result of tax avoidance.Originality/valueTo the best of the author’s knowledge, this study is the first to investigate the impact of financial-tax reporting conformity jurisdictions on the association between CSR and aggressive tax avoidance. This study also contributes to the literature in that, it uses an alternative data set which offers a more objective assessment of CSR measure and covers multiple countries.

This paper investigates whether religious-based index membership is important in mitigating earnings management. Using a large sample of firms domiciled across 12 European countries, our empirical results show that firms included in the Shariah-compliant index, as a proxy for religious index, are more likely to engage in accruals manipulation vis-a-vis non-Shariah-compliant firms. Our results are robust using the Heckman two-stage treatment effect model, weighted least squares model, alternative earnings quality metrics and after controlling for the potential effects of home-country characteristics. Furthermore, our empirical results indicate that corporate governance of Shariah-compliant firms does not constrain managerial opportunistic behaviour in misreporting earnings, and firms that with low scores of board functions, shareholder rights and vision and strategy are more likely to engage in earnings management. Further, Shariah-compliant firms domiciled in Coordinated Market Economies are more likely to manipulate earnings than those in Liberal Market Economies. Taken together, our findings suggest that the Shariah index membership does not indicate good corporate governance that can mitigate earnings management, and it may serve as a legitimacy mechanism to conform to stakeholders' expectations. Our findings support arguments that the religious-based index membership is plausibly used as a 'label' and an impression management tool to attract investment.

This study examines the effect of two potential sources of ethical principles on earnings quality: corporate social responsibility (CSR) and membership in a Shariah index. We define membership in a Shariah index as the adherence to an ethical code that relates to Islam. Our sample comprises firms in ten European Union countries for the period from 2003 to 2013. The empirical results show that firms with a high degree of CSR are less likely to manage earnings. In contrast, membership in a Shariah index leads to earnings manipulation. Our results are robust after using several alternative quality metrics for earnings. Furthermore, our empirical results indicate that highly rated CSR firms that are not Shariah-compliant are less likely to engage in earnings manipulation. Further, institutional factors are also important in determining the link between CSR, Shariah-compliance, and the quality of financial reporting.

This paper aims to investigate the relationship between Corporate Social Responsibility (CSR) and financial reporting quality. It also investigates the effect of Shariah screening processes on the relationship between CSR and financial reporting quality. This study uses discretionary accruals (DA) as a proxy of EM. The sample is constructed based on Thomson Reuters ASSET4 and FTSE Shariah index, having a sample of 4085 firm-year observations domiciled in Europe for the period of 2003-2011. We find that there is a positive association between CSR and financial reporting quality. In addition, the model has been re-estimated using ASSET4’s pillars and categories and we observe that both of social performance and environmental performance pillars do have an effect on enhancing the quality of financial reporting. Furthermore, the findings evidence that CSR in training and development, diversity, human right, community, resource reduction and emission reduction have a significant influence on mitigating a firm’s opportunistic behaviour of managing earnings using accruals, and then increasing the quality of financial reporting. On the other hand, this study examines whether CSR firms that are Shariah-compliant engage in CSR as a moral obligations and behave ethically in terms of providing high-quality financial reporting compared to CSR firms that are not Shariah-compliant. We find that CSR firms that are not Shariah-compliant are less likely to manage earnings through accruals. The results suggest that Shariah screening processes appear to have no effect on mitigating the opportunistic behaviour of involving in CSR activities for the purpose of managing earnings. This finding does not support the argument that Shariah complaint firms conducting their activities in ethical and transparent manner. This study provides a new and far-reaching addition to prior literature by assessing the association between CSR and financial reporting quality, and the impact of Shariah screening processes on mitigating managerial opportunisms of engaging in CSR and EM activities. This also contributes to the growing discussion on CSR and financial reporting quality from an Islamic ethical perspective.