Corporate Social Responsibility, Creditor Oversight and Substitution Between Accrual and Real Earnings Management

ABSTRACT

This study examines how corporate social responsibility (CSR) shapes earnings management (EM) under varying levels of creditor oversight in an emerging economy. Using a panel dataset of 92 Vietnamese manufacturing firms from 2017 to 2021, we distinguish between accrual‐based earnings management (AEMA) and real earnings management (REMA). We adopt a substitution perspective and examine how managers reallocate between AEMA and REMA under different monitoring conditions. We apply fixed effects, random effects, feasible generalized least squares, and instrumental variable GMM estimations to address unobserved heterogeneity and endogeneity concerns. Results show that CSR exerts asymmetric effects on EM. Under weak creditor oversight, CSR increases AEMA but reduces REMA, suggesting that managers use CSR to support accounting discretion while avoiding real operational distortions that could harm long‐term performance. Stronger creditor oversight, proxied by leverage, is associated with lower accrual‐based earnings management in the validated specifications, while the REMA results indicate partial reallocation toward less observable real activity manipulation under stronger monitoring. Drawing on signaling theory under monitor‐specific detection asymmetry, we show that CSR affects not only the level but also the form of EM, depending on the monitoring intensity. A suspect‐firm subsample analysis provides evidence consistent with the proposed substitution mechanism. Overall, CSR does not uniformly constrain EM but shifts managerial opportunism across the reporting channels.