China has played a crucial role in world economics, along with its rapid economic growth in recent years. In order to maintain permanent growth, China encourages its listing companies to take more social responsibility and use more incentive compensation in the structure of management compensation. In this connection, prior studies reached competing arguments with the relationship between CSR performance and earnings management. Some argues that companies with better CSR performance are more willing to be transparent and thus are less likely to manipulate their earnings. Others argue that managers are opportunistic and may have incentive to manipulate their earnings especially when companies have better CSR performance.
Based on this, This research explore this issue by investigating the impact of CSR performance and incentive compensation on earnings management. To conduct this research, listing companies which have CSR reporting are used as the sample. The empirical results show that companies with higher incentive compensation experience more earnings management, while companies with higher CSR performance have less earnings management. In summary, the findings of this research lend support to the financial reporting transparency contention.
