The Influence of Audit-Committee Characteristics on the Association between Corporate Social Responsibility and Earnings Quality

Abstract

Corporate social responsibility (CSR) activities are affected by the national system, and the social and cultural environment to which a firm belongs. This study investigates whether the characteristics of an audit committee (AC) such as independence, expertise, activity, or power influence the relation between CSR and earnings quality for Korean firms. Multivariate regression analysis is used to identify the effect of AC characteristics on the relation between CSR and the earnings management of firms with CSR excellence, as well as whether their contribution enhances the quality of earnings of firms that actively engage in CSR practices. The results show that when ACs are active, earnings management using the discretionary accruals of firms that participate in CSR activities with an ethical motive is more tightly constrained. ACs are more effective when they have independent directors, accounting expertise, active participation, and relative power. The findings suggest that ACs have a positive effect on the financial reporting quality of firms with high levels of CSR. Furthermore, active ACs are crucial for improving the quality of earnings, which is further enhanced when ACs have a variety of superior characteristics.