Table of Contents

1. Background ......................................................................................................................................... 2
2. Literature review ................................................................................................................................. 3
a. Overview Corporate Social Responsibility and CSR Reporting .............................................. 3
b. Overview earning management and earning smoothing ......................................................... 6
c. The impact of corporate social responsibility reporting on earning smoothing ..................... 8
3. Aims, questions, and hypotheses of the research ...................................................................... 10
a. Aims................................................................................................................................................ 10
b. Questions....................................................................................................................................... 10
c. Hypotheses ................................................................................................................................... 11
7. Methodology ...................................................................................................................................... 11
a. Research design........................................................................................................................... 11
b. Data collection and sample ......................................................................................................... 12
c. Data analysis................................................................................................................................. 13
8. Timetable ........................................................................................................................................... 14
9. Bibliography....................................................................................................................................... 15
Title: the impact of the CSR reporting on the earning smoothing

1. Background

Due to the rise of the concerns of the stakeholders were the organizations

contributions in the development of the community and the provision of different

services to the society, many of the organization had been focusing on the commitment

toward the corporate social responsibility reporting. Despite of the fact that there are

many reasons the bride the companies to contribute in the social developments and

sustainability, the results are the same that is based on the enhancement of the

organization contribution means the social sustainability (Caramela, 2016). On the other

hands, many of the organizations had been committing in earning management

practices, such as earning smoothing, for the purpose of manipulating the values of

their financial capabilities, the stocks, and securities. These practices had been leading

to the increase of investors’ desirability for the investing in these companies (Gao &

Zhang, 2013).

Throughout this literature, there had been different studies that had been

focusing on the identification of the major impact of the corporate social responsibility on

the earning management and earn smoothing practices. However, the major focuses

had been based on the identification of the negative impact of the earnings smoothing

over the financial Abilities and positioning of the organization. Apart from the costs will

and risks that can be witnessed by the organizations and the investors, throughout this

research that will be analysis for the relationship between the corporate social

responsibility reporting and the earning management and earnings smoothing practices.
The importance of this research is based on the idea that the study of the relation

between the two variables will be highlighting the role that can be played by the

corporate social responsibility reporting for the limiting of the earning smoothing

incidents.

2. Literature review

a. Overview Corporate Social Responsibility and CSR Reporting

The corporate social responsibility can be realized as that strategy and

organization of the organization, regardless their sizes or industrious, for the following of

sustainable developments strategy (Caramela, 2016). The sustainable developments

strategies would be targeting the enhancement of the development and growth of three

major areas. The first area is considered to be the economic sustainability, which is

focusing on the reduction of the entire economic waste, as well as the continuous

enhancements for the economic benefits. The second area is considered to be the

environmental sustainability, which is considered to be focusing on the production of the

entire damages that can be called by the government, businesses, and other institutions

during the performance of the operations, for the purpose of the protection and positive

of the natural resources and the surrounding environment. The third area is considered

to be the social sustainability [corporate social responsibility], which is considered to be

focusing on the development of the social benefit and development for the entire is that

all being affected by the organizations (Yigitcanlar, 2010). The following of corporate

social responsibility, will be providing the organization high ability to fulfill one of the

main areas of the sustainable development. Organizations that seek to from the
corporate social ability would be directing the majority of their efforts, resources, and

skills for the purpose of serving of the community, the enhancement of their well-being,

meeting the needs and demands of the entire members of the society, and the handling

of the majority of the problems that facing the society. There are many approaches,

which had been focusing on identification of the limitation or the extent to which the

companies would have to for fear their responsibilities toward the society. One of the

main approaches of the corporate social responsibility had been considering the

responsibility to be unlimited, which will be on the identified throughout the Ability of the

company. In other words, it can be stated that this approach is focusing on the

continuous developments for the society, which would be extending to the finite limits,

as long as the company would be holding the capability to perform good (Lee & Kotler,

2011). There are three main models that had been developed to identify the efforts of

the corporate social responsibility. The first model is considered to be the corporate

citizenship model, which had been suggesting that the company is should be exerting

corporate social responsibility efforts, for the purpose of doing public goods, without

waiting for any return on their efforts. According to this model, corporate social

responsibility is considered to be a moral obligation over the companies, which will not

set any penalties for not fulfilling these responsibilities. The second model had been

referred to as a social contract, which had been suggesting that the companies had

been benefiting from the community that in turn would be making obligation over those

companies to respect and protect the rights of the entire stakeholders of the company.

According to this model, the organizations would owe reciprocal obligation towards the

society. The third, and final, model is considered to be the enlightened self-interests
model, which had been suggesting that the ability of the organization for meeting its

responsibilities toward the society would be ensuring that the company would be able to

gain high competitive advantage with the national and international markets. According

to this model, organizations that are operating within the social services would be able

to reap the benefits from serving the community throughout the growing of their

reputations, brand equity, and the positioning with this in mind of the customers and the

entire public (Peterson, 2012). The corporate social responsibility reporting has been

realized as one of the main approaches that is been followed for the purpose of the

enhancement of the public awareness of the role that are being played by the

organization for the purpose of serving and evolving the community. Despite of the fact

that the corporate social responsibility reporting had been witnessing different changes

and restructuring within the last decades, it can be suggested that there is no one best

approach that can be followed for the formulation and the collation of the corporate

social responsibility reporting (Jagd, 2014). In other words, different companies and

different organizations are formulating their corporate social responsibility reporting

throughout different approaches, as well as following different systems. Regarding the

differences between reporting styles and systems, there are four main categories that

should be incorporated within the corporate social responsibility reporting, which are the

environmental efforts that had been conducted by the organization, philanthropy or

donations monk that had been conducted by the organization, ethical labor practices,

and volunteering of the organization of the organizational employee (Caramela, 2016).

 b. Overview earning management and earning smoothing

The earning management is considered to be one of the concepts that are going

for the use all accounting strategies and techniques that formulation of different financial

records, which you be essential for the identification of the financial performance of the

company, as well as providing the company with and overall image of efficiency and

financial effectiveness of the operations (Sun, Habbash, Salama, & Hussainey, 2016).

The main users or customers of those financial reports are considered to be the big

customers of the company or the business customers, the investors of the organization

stocks, the government officials and agencies, and entire stakeholders who would be

interested in the identification of the financial performance of the organization. The

earning management practices are considered to be one of the most effective

approaches for ensuring the transparency of the company and providing the public and

the investors a clear view of the entire organizational ability (Mukhtaruddin, Soebyakto,

Irham, & Abukosim, 2014). However, in some cases, this high transparent practice can

be realized as an act of fraud. One of them in one of the main methods that are being

used by organizations is considered to be the earnings smoothing. Smooth earning

process is considered to be the use of accounting methods, for the purpose of the

enhancements of the stability with the net income of the organization. In other words,

organizations tend to eliminate fluctuations within the net income, which would be

providing the stocks of the organization high rate of attractiveness. Investors tend to use

the financial reports of the company in order to identify the financial performance of the

organization as well as identify the level of the risk that will be attention to associating

their investments with the company stocks. When the company performs earning
smoothing practices, the financial reports would be identifying or showing higher rates

of strong financial position (Lassaad & Khamoussi, 2013). Furthermore, smooth earning

process and be recognized to be pulling within two main groups. Firstly, smooth earning

can be artificial, in which there would be no impact over the organizational cash flows,

throughout the deployment of the GAAP flexible reporting system. Artificial smooth

earning would be leading to cost that are indirect. Secondly, smooth earning can be

Real, in which the financial managers will be focusing on formulating changes within the

timing of the investments and promotional research decisions and recordings to the end

of the quarter, so that there would be leading to their reflection with the financial reports

(Goel & Thakor, 2006). According to Collins et al. (1994), that changes within the low

prices of the higher smoothing companies includes higher rates all information and

predictions about the earnings that would be gained by the company in the future. For

an instance it had been suggested that the earning smoothing is considered to be

leading to the enhancement of the informative-ness about the cash flow of the

organization, as well as earnings that would be gained in the present and the future

(Tucker & Zarowin, 2006).

 c. The impact of corporate social responsibility reporting on earning

smoothing

Throughout the studies of the previous researchers, it had been realized that

there is a direct relationship between the corporate social responsibility of the

organizations and the earning management systems and financial reporting that are

being followed. For an instance, it had been suggested that the earnings that had been

reported by the organizations that practice in earnings morning and to follow corporate

social responsibility are considered deviating with lower degree from the actual or

permanent earnings. In other words, it can be suggested that the financial reporting and

Earning values of the corporate social responsibility organizations are considered to be

more accurate, reliable, and valued that the organization that do not follow social

responsibilities. In addition, it had been realized that the corporate social responsibility

is considered to be providing an exceptional quality dimension for the organizations and

their smooth earnings (Gao & Zhang, 2013). Furthermore, throughout the study of the

linkage among learning management and corporate social responsibility, it had been

realized that the tie between these two variables cannot be studies throughout the

impact over the financial performance of the organization. For an instance, the

enhancement of the organizational corporate social responsibility can be affected by the

organizational focus on the fulfillment of the interests of the entire stakeholders. In

addition, the studies showed that the linkage between social responsibility and earnings

smoothing can be leading to highly negative impact over the organizational financial

performance. This means that corporate social responsibility companies will tend to

reduce their earnings smoothing, for the purpose of the survival of the organizations
(PRIOR, SURROCA, & TRIBO, 2007). According to Francis et al. (2008), it had been

suggested that there is a negative relationship among the disclosures of the corporate

social responsibility and the earning management and earnings smoothing. Throughout

the study of the United States of America companies, it had been realized that the

influencing of corporate social responsibility disclosures over the reduction of earning

management practices had been based on the high political costs. For an instance,

within the industry’s, where the political risk is considered to be high, such as oil and

gas sectors, it had been realized that there is a negative relationship between corporate

social responsibility and earning management. On the other hand, the industries that

have low political risk the relationship is considered to be substituted. This is study

ensures that the determinations of the relationship between corporate social

responsibility reporting and learning management is considered to be contextual or

affected by the level of risk within the sector of the industry (Yip, Staden, & Cahan,

2011). On the other hand, according to Barth and Landsman (2010), the GAAP of the

United States of America had been formulating specific rules and regulations, for the

purpose of the identification of the value of certain assets, liabilities, and financial

instruments. These values would be identified and evaluated by the management of the

organizations, which provide the managers higher freedom for the manipulation of the

data in order to increase the value of the stocks that they are selling which would be

leading to higher rates of value and the higher financial gains by the organization.

According to Cornett et al. (2009), the lack of regulations that would be controlling the

evaluation process for the organizational assets, liquidity, and different indicators for its

financial position would be using the quality of the information. This will be providing the
investors with the wrong data that may lead them to date ineffective and unsuccessful

investment decisions regarding certain securities or stocks. Furthermore, the

organizations will be more flexible to be acting in immoral pattern for that enhancement

of their funds and financial capabilities in and on ethical way (Grougiou, Leventis,

Dedoulis, & Owusu-Ansah, 2013).

3. Aims, questions, and hypotheses of the research

a. Aims

- To identify the impact of the corporate social responsibility reporting on the

earning smoothing

- To identify the impact of the corporate social responsibility reporting on the

earning per share, net income, and return on equity

- To identify the impact of the corporate social responsibility reporting on the

demand rates of the stocks of the organizations

b. Questions

- Does the earnings smoothing is declining in organizations that have greater

commitment to corporate social responsibility?

- Do managers use corporate social responsibility reporting for rooting themselves,

and gaining stakeholders’ support?

- What is the nature of the impact of the corporate social responsibility reporting on

the organization’ earning smoothing?

 c. Hypotheses

1. Corporate social responsibility reporting is negatively related to the earning

smoothing incidences

2. Corporate social responsibility reporting is positively related to earning per share

3. Corporate social responsibility reporting is positively related to net income

4. Corporate social responsibility reporting is positively related to return on equity

5. Corporate social responsibility reporting is positively related to demand rates of

the stocks of the organizations

6. The organizations that are committed to the corporate social responsibility

reporting avoidance the earning management practices for ensuring the

protection of their financial positions

7. Methodology

a. Research design

The analysis of the impact of the CSR over the earning management would be

conducted throughout the choice of a target sample group, which would be consisted of

30 companies, whose stocks are being traded within the stock market in Egypt. The

study will focus on two variables. The independent variable will be the corporate social

responsibility, which will be analyzed from the companies’ CSR reports. The dependent

variables will be the earning smoothing, which reflect the rate of the company’s

changing in its earning data to be realized as an attractive option for the investors. The

analysis will be conducted throughout a quantitative approach, which would be

depending on the analysis of the data of the financial statements of the targeted

organizations.

b. Data collection and sample

For the collection of the primary data, the researcher will be conducting

interviews with the managers in 20 of the organizations that are committed to the

corporate social responsibility reporting, as well as another 20 of the organizations that

are not committed. These interviews will be focusing on the collecting of the qualitative

and descriptive data, for the purpose of the identification of the organizational strategies

that are being followed regarding the earning management. On the other hand, the

researcher will be conducting interviews with auditors within those Egyptian stock

markets in Cairo and the taxation agency of Egypt, for the purpose of identifying the rate

of the earnings smoothing incidents that had been witness from the companies that are

committed and not committed to the corporate social responsibility reporting. In addition,

the identification of the changes within the corporate social responsibility would be

identified and conducted throughout the measurement of the propulsion of the

organizational income or net profit that had been directly toward social services and

initiate. Furthermore, the researcher will use secondary data for the identification of the

studies that had been conducted by the previous researchers; who had been focusing

on the studying all the same relationships between the independent variable [corporate

social responsibility reporting] and then dependent variable [earning smoothing].

 c. Data analysis

Analyzing the data would be requiring the development of the researcher will be

highlighting the relationship between the proportion of the net profits of the organization

that are being directed towards fulfilling organizational social responsibility of the

organizations, which will be measures by the value of Y, and the following variables:

1. Earning smoothing incidences, which would be referred to by the value X

2. Earnings per share, which would be referred to by the value Z
3. Net income, which would be referred to by the value N
4. Return on equity, which would be referred to by the value M
5. Demand rates of the stocks of the organizations, which would be referred to
by the value L

The following model would be used for the measurement of the relation:

Y=X+Z+N+M+L

Throughout the use of the SPSS model, the researcher will be entering that data

of the entire independent variable and dependent variables, which would be asked that

the throughout multivariable regression analysis. This analysis would be providing

indicators for the impact of the value of Y on the values of X, Z, N, M, and L.

 8. Timetable

January February March April May June

Secondary data

preparation

Primary data

preparation

Analysis of

secondary data

and writing

literature review

Analysis of

primary data

and writing the

findings

Articulating the

entire research

paper

Submission of

the research

paper
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