The mediating role of real earnings management in the relationship between CSR practices and cost of equity: evidence from European ESG data
Abstract
Purpose
The goal of this article was to look into the direct and indirect links between corporate social responsibility (CSR) activities and the cost of equity, using real earnings management (REM) as a mediator.
Design/methodology/approach
To test the hypotheses, the authors applied linear regressions with panel data using the Thomson Reuters ASSET4 and I/B/E/S database on a sample of 540 European companies selected from the environmental, social and governance (ESG) index over the period 2011–2019.
Findings
The results show that REM partially mediates the relationship between CSR practices and the cost of equity in European firms belonging to the ESG index.
Practical implications
Instead of beautifying their business, companies should make efficient managerial and organizational improvements to meet their social duty. Regulators in Europe must strive for tighter enforcement while also attempting to raise public awareness of CSR. CSR can be profitable and helpful for primary stakeholders, according to the research.
Originality/value
Although previous literature has investigated the direct correlation between CSR practices and the cost of equity, the present work focuses on considering the direct and indirect association between CSR and cost of equity through the mediating effect of REM, which has not been widely used in CSR studies so far.
Keywords
Acknowledgements
The authors would like to thank the Editor and the two anonymous referees of the “EuroMed Journal of Business” for their insightful comments that have greatly benefitted the paper.
Funding: The author(s) received no financial support for the research, authorship, and/or publication of this article.
Citation
Chouaibi, Y. and Zouari, G. (2022), "The mediating role of real earnings management in the relationship between CSR practices and cost of equity: evidence from European ESG data", EuroMed Journal of Business, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/EMJB-12-2021-0183
Publisher
:Emerald Publishing Limited
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