THE NEXUS BETWEEN CORPORATE SOCIAL RESPONSIBILITY, OWNERSHIP STRUCTURE, AND FINANCIAL HEALTH: AN EXAMINATION OF FIRM SPECIFIC PREDICTORS OF EARNINGS MANAGEMENT

Abstract

This study explores the firm-specific determinants of earnings management (EM) in Pakistan’s non-financial sector, emphasizing the roles of corporate social responsibility (CSR), ownership concentration, and financial stability measured by the Altman Z-Score.  Using panel data from 160 non-financial firms spanning 2015–2024, discretionary accruals are estimated through the Modified Jones Model. Both panel and quantile regression methods are applied to capture average and distributional effects. The results reveal that CSR is positively associated with EM, suggesting that firms may employ CSR initiatives as a strategic mechanism for impression management rather than as a constraint on opportunistic behavior. Ownership concentration also shows a positive relationship with EM, consistent with the entrenchment hypothesis that dominant shareholders can exploit control to influence financial reporting. In contrast, the Altman Z-Score is negatively related to EM, indicating that financially distressed firms are more inclined to manipulate earnings to maintain legitimacy and financing access. Overall, the findings contribute to agency, legitimacy, and stakeholder theories by emphasizing how firm-specific dynamics shape opportunistic reporting in weak institutional environments.