By drawing on stakeholder-agency theory and the earnings management framework, we
hypothesize a positive connection between corporate social responsibility and earnings
management. We argue that earnings management damages the interests of stakeholders.
Hence, managers who manipulate earnings can deal with stakeholder activism and vigilance
by resorting to corporate social responsibility (CSR) practices. Furthermore, CSR is a
powerful tool that can be used to garner support from stakeholders and, therefore, provides
an avenue for entrenchment to those managers that manipulate earnings, so as to reduce
significantly their chances of being fired. Finally, we expect that the positive connection
between corporate social responsibility and financial performance is negatively moderated
when combined with earnings management practices. We demonstrate empirically our
theoretical contention by making use of a database comprising 593 firms from 26 nations for
the period 2002-2004
