B Corporation Certification : A Further Exploration into the Impact of Corporate Social Responsibility on Earnings Management

In this study we examine how corporate social responsibility (CSR) impacts earnings management in the setting of B corporation certification, a rigorous and costly third-party CSR certification. Using a sample of professionals employed at B corporations and non-B corporations, we utilize a scenario-based research design to assess their likelihood of engaging in different types of earnings management. We find that B corporation managers are less likely to engage in real earnings management that has a negative CSR effect than non-B corporation managers. Focusing on B corporation managers’ preferences, we find that they are less likely to engage in 1) accruals earnings management than real earnings management without a CSR effect and 2) real earnings management with a negative CSR effect than real earnings management without a CSR effect. These findings extend our understanding of the relationship between CSR and earnings management and contribute to the emerging B corporation literature