Earnings Management and Corporate Social Responsibility Disclosure with Accounting Complexity and Audit Committee Effectiveness as Moderating Variable: A Study in Indonesia

Abstract:

The purpose of this study is to investigate the earnings management as a trigger of corporate social responsibility disclosure in Indonesian company. This study investigates 85 manufacturing companies that listed in BEI during 2011 and 2012. The method used in this study is regression using panel data. This study finds that the earnings management positively affects the corporate social responsibility disclosure. This study also finds that the accounting complexity weakens the effect of earnings management on corporate social responsibility disclosure. This study finds no significant effect of audit committee on the association between earnings management and corporate social responsibility disclosure. This study shows that when managers do earnings management, they tend to increase the disclosure of corporate social responsibility. This high disclosure of corporate social responsibility can reduce the stakeholder’s attention on manager’s effort to manage earnings. This study also shows that when the accounting complexity increases, companies tend to reduce the disclosure of corporate social responsibility because stakeholders find the difficulty to assess earnings management conducted by managers.This study contributes to give evidence that when the accounting complexity increases, the company’s effort to hide the earnings management using high disclosure of corporate social responsibility will decrease because the information asymmetry will prevent the investor to detect earnings management conducted by managers.