stock exchange
Abdolrasoul Rahmanian Koushkaki; Sohrab Vahdan Asl
Abstract
The purpose of this study is to investigate the effect of fixed asset investment and financial performance on the relationship between social responsibility and debt financing. The present study is applied and, from the methodological point of view, is a causal-correlational (post-event) study. The statistical ...
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The purpose of this study is to investigate the effect of fixed asset investment and financial performance on the relationship between social responsibility and debt financing. The present study is applied and, from the methodological point of view, is a causal-correlational (post-event) study. The statistical population includes all companies listed on the Tehran Stock Exchange, and using the systematic elimination sampling method, 141 firms were selected as the research sample and studied over a 10-year period between 2014 and 2023. The findings of hypothesis testing showed that there is a direct and significant relationship between social responsibility and debt financing. Investment in fixed assets does not affect this relationship between social responsibility and debt financing, but financial performance has an inverse and significant effect on this relationship. By adhering to social responsibilities and respecting the rights of stakeholders and society, company managers can more easily access external financing by creating a better image. In addition, obtaining a higher social rank can strengthen the company's image for investors and provide greater assurance IntroductionCompanies and economic institutions need appropriate and timely financing to invest, repay debts, and increase working capital. Financial managers are always trying to increase the value of the company by creating new financing methods. Companies do not rely on only one type of resource; they try to use multiple resources to implement their plans and address their needs. Various factors can affect access to debt financing. Corporate social responsibility is one of the important issues that can influence the company's financing process. It is described as the process of creating wealth, promoting the company's competitive advantage, and maximizing the value of wealth and benefits created for society. In general, it reflects the commitment and attention of the business to the quality of life of employees, customers, the local community, and society as a whole, with the aim of developing a sustainable economy. Literature ReviewDebt financing is a more desirable solution for financing due to tax savings and its lower rate compared to the expected returns of shareholders, but what is important for creditors is the company’s repayment ability (Ebrahimi et al., 2019). Organizations should always consider themselves a part of society and have a sense of responsibility towards society. In order to improve public welfare, employees, and related stakeholders, companies should also work beyond their direct interests. A company's social responsibility focuses on important issues such as ethics, environment, security, education, and human rights (Kordestani et al., 2018). Companies with higher social responsibility can, in fact, provide a strong guarantee for debt repayment, ensure the proper functioning of the company, reduce managers' behavioral biases, and ensure the provision of accurate information by managers to the capital market. This can increase companies’ access to financing through debt (Oyar et al., 2024). Therefore, the first hypothesis of the present study is as follows:H1: Social responsibility affects access to financing through debt.Financial performance is an objective measure of how effectively an organization has used its assets to generate revenue. It is one of the most important indicators for evaluating its performance and the degree of achievement of predetermined goals (Rahimian et al., 2013). Financial performance reflects the efficiency or inefficiency of the company and can therefore influence the opinions of investors and creditors regarding the company's performance. Accordingly, the second hypothesis of the present study is as follows:H2: Investment in fixed assets affects the relationship between social responsibility and access to financing through debt.One of the fundamental variables affecting the future performance of companies, and consequently the return on their shares, is the level of investment in fixed assets. This can pave the way for achieving the desired return in the future. However, since higher investment involves greater risk, it can weaken the company's financial position, reducing its ability to maintain current returns and achieve growth in future periods. In the long run, this can also decrease the company's efficiency and performance (Oyar et al., 2024). Therefore, the third hypothesis of the present study is as follows:H3: Financial performance affects the relationship between social responsibility and access to financing through debt. MethodologyThe present study is applied and, from a methodological point of view, is causal-correlational (post-event). The statistical population includes all companies listed on the Tehran Stock Exchange, and the study period covers 2014 to 2023. The systematic elimination method was used to determine the sample, and 141 companies were selected as the research sample. Data analysis was carried out using the combined data method and the panel data approach, and Eviews 12 software was applied to test the hypotheses. ResultsThe findings from testing the research hypotheses showed that there is a direct and significant relationship between social responsibility and financing through debt. Investment in fixed assets does not affect the relationship between social responsibility and financing through debt, but financial performance has an inverse and significant effect on this relationship. By adhering to social responsibilities and respecting the rights of stakeholders and society, company managers can more easily access external financing by creating a better image. In addition, obtaining a higher social rank can strengthen the company's image for investors and provide greater assurance. DiscussionThe results showed that corporate social responsibility directly affects financing through debt. In fact, when companies adhere to social principles and responsibilities, those who extend credit to the company operate in a more favorable environment for repayment, which simplifies companies’ access to debt financing. One of the fundamental variables affecting the future performance of companies, and consequently the return on their stocks, is the level of investment in fixed assets. Such investment can pave the way for achieving desirable returns in the future, but because of the added risk it places on the company's financial position, higher investment can reduce the company's ability to maintain its current return and achieve growth in future periods. While investing in fixed assets should theoretically affect debt financing because such assets can serve as collateral, the results showed that this feature has no effect on the relationship between social responsibility and debt financing. Financial performance reflects the overall performance of the company and the profitability derived from expenses and assets. It weakens the relationship between social responsibility and debt financing. In fact, it can be interpreted that financial performance influences the relationship between social responsibility and debt financing. ConclusionThe main limitation of the present study is the lack of a comprehensive and complete index to measure the social responsibility of companies. If the Stock Exchange Organization were to provide a general measure of social responsibility through comprehensive studies, the scope of research in this field would be greatly expanded.
Financial Accounting
Hayder Hussein Nassr; Hamzeh Didar; Gholamreza Mansourfar
Abstract
The aim of this study is to examine the presence of motivations related to the charity, signaling, and socially responsible investment (SRI) hypotheses, as well as the role of financial reporting quality in fostering these motivations, if present. This research is applied in nature and falls within the ...
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The aim of this study is to examine the presence of motivations related to the charity, signaling, and socially responsible investment (SRI) hypotheses, as well as the role of financial reporting quality in fostering these motivations, if present. This research is applied in nature and falls within the descriptive-correlational category, as it explores the relationships between variables. Based on specific criteria and limitations, the screened sample consists of 101 companies listed on the Tehran Stock Exchange during the years 2014 to 2023, which were analyzed using multivariate regression models. The findings indicate that companies' participation in corporate social responsibility (CSR) activities is driven by motivations beyond charitable purposes. Furthermore, financial reporting quality has a positive and significant impact on optimal CSR—those activities driven by investment-related motivations—while it has a negative and significant impact on deviations from optimal CSR, which are driven by signaling motivations. Overall, the results suggest that companies with higher financial reporting quality are less likely to engage in opportunistic signaling through CSR activities. Consequently, CSR in these companies is more aligned with optimal goals, such as investment, profit generation, and enhancing firm value.IntroductionSeveral theoretical frameworks explain how financial reporting quality influences corporate social responsibility (CSR) activities. Legitimacy theory suggests that companies with agency problems may disclose CSR information to rebuild trust. Signaling theory argues that high-quality financial reporting uses CSR to signal transparency and financial health. Stakeholder theory emphasizes that high-quality financial reporting motivates companies to consider stakeholder interests. Agency theory suggests that low-quality reporting may lead companies to use CSR to hide weaknesses. Lys et al. (2015) propose three hypotheses: (1) the charity hypothesis (CSR for societal benefit), (2) the investment hypothesis (CSR to improve performance), and (3) the signaling hypothesis (CSR driven by future prospects or opportunism). This study aims to examine the impact of financial reporting quality on these hypotheses.Research hypothesesCSR activities do not have a significant impact on the company's financial performance.Financial reporting quality has a positive impact on CSR activities motivated by investment purposes.Financial reporting quality has a significant impact on CSR activities driven by signaling motives. Literature ReviewFinancial reporting quality can create different incentives for companies to engage in corporate social responsibility (CSR) activities, with varying motivations depending on the level of reporting quality. According to Lys et al. (2015), these motivations can be categorized into three hypotheses: the charity, investment, and signaling hypotheses.Charity Hypothesis: High-quality financial reporting can lead to CSR activities driven by genuine philanthropic motivations, whereas companies with low-quality reporting might use CSR as a tool to mask managerial or informational weaknesses. The charitable motivation is typically seen as non-strategic in companies with high-quality reporting, but in companies with lower-quality reporting, CSR may serve as a means to manipulate stakeholders' perceptions without a true commitment to society.Investment Hypothesis: Under this hypothesis, CSR activities are viewed as investments aimed at improving financial performance. Companies with high-quality financial reporting treat CSR as a strategic tool to enhance performance, believing it can reduce capital costs, improve reputation, and strengthen relationships with stakeholders.Signaling Hypothesis: CSR activities are used as signals to the market and stakeholders. Companies with high-quality financial reporting use CSR to send positive signals regarding their commitment to social and environmental causes, while companies with poor reporting may use CSR as a misleading signal to compensate for weak financial transparency. MethodologyThis applied, retrospective study focuses on analyzing relationships between various variables using past data. It is descriptive-correlational in nature. A library research method was used to develop the theoretical framework and review the literature. Primary data were collected from sources such as the Rahavard Novin software database, financial statements, company notes, and board of directors' reports. The research population includes companies listed on the Tehran Stock Exchange, with data collected from 2014 to 2023. Based on specific criteria, 101 companies were selected for hypothesis testing during this period. Results and DiscussionThe results of the first hypothesis showed that CSR positively impacts company performance, indicating that motivations beyond charity should be explored in Iranian companies. Financial reporting quality was found to drive CSR activities, supporting the second and third hypotheses related to investment and signaling motives.The second hypothesis confirmed that financial reporting quality positively impacts optimal CSR, with companies using CSR to increase value and profit. This finding is consistent with signaling and stakeholder theories, as companies with high-quality reporting are more motivated to engage in CSR for investment purposes.The third hypothesis showed that financial reporting quality negatively impacts deviations from optimal CSR, suggesting that high-quality reporting reduces opportunistic motives and leads to more genuine CSR efforts. These findings confirm that financial reporting quality promotes investment-driven motivations and reduces opportunistic behavior. ConclusionBased on the results of this study, it can be concluded that companies can improve their performance by engaging in CSR activities, and these activities are driven by motivations beyond philanthropic goals. In this context, financial reporting quality has a positive and significant impact on optimal CSR. This indicates that companies with higher financial reporting quality engage in CSR activities with investment and profit-seeking objectives. Additionally, financial reporting quality has a negative and significant impact on deviations from optimal CSR. This result suggests that companies with higher financial reporting quality are less likely to send opportunistic signals through CSR. As a result, CSR in these companies is more aligned with optimal goals—namely, investment purposes, profit generation, and enhancing company value.AcknowledgmentsWe would like to express our sincere gratitude to all the esteemed professors who assisted the authors in preparing this article.
Accounting and various aspects of finance
Saman Mohammadi; Zahra Oryaie; Ali Naderi
Abstract
Considering the impact of CEO Power on a bank’s performance, CEOs can play a role in social responsibility and earnings management. Given that earnings management in banks can have various effects on other industries and the overall economy, banks tend to practice earnings management more frequently ...
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Considering the impact of CEO Power on a bank’s performance, CEOs can play a role in social responsibility and earnings management. Given that earnings management in banks can have various effects on other industries and the overall economy, banks tend to practice earnings management more frequently than non-financial organizations. Furthermore, due to a lack of transparency and information asymmetry, banks are required to be more accountable to society than other industries. Therefore, this research aims to investigate the impact of CEO Power on the relationship between social responsibility and earnings management in banks. The research sample comprises 16 banks listed on the Tehran Stock Exchange Market and Iran OTC between 2016 and 2021. These banks were selected to test the research hypothesis. The findings of the study suggest that social responsibility has a significant negative impact on earnings management in banks. This implies that an increase in social responsibility may lead to a decrease in information asymmetry and lack of transparency, resulting in a decrease in earnings management. Furthermore, the findings of the study indicate that CEO power does not play a significant role in moderating the relationship between social responsibility and earnings management in banks.IntroductionIndeed, engaging banks in social responsibility practices is expected to be beneficial for their stakeholders. In this context, stakeholders are often attracted to banks with a good reputation for social responsibility. Therefore, executives may engage in social responsibility activities to gain support from stakeholders, defend themselves against stakeholder activism, manage their business reputation, or protect their own careers. However, executives may also engage in social responsibility activities to manipulate earnings management and hide their self-interest motivations, which leads to agency problems. These agency problems arise when executives take opportunistic actions such as earnings management to maximize their profits, increasing the bank's agency costs. Given the influence of powerful CEOs on a bank’s performance, powerful CEOs play a role in social responsibility and earnings manipulation. Therefore, CEO power is one of the most important determinants affecting managers’ decisions.the current research has several important aspects. First, it extends the literature on the effect of commitment to social responsibility activities on firm earnings management, with a specific focus on the banking sector. Second, the research fills a gap in the literature regarding the role of social responsibility in financial reporting. Previous studies have not provided a clear consensus on whether social responsibility commitment has a positive or negative impact on financial reporting quality. Given the diversity of findings reported by previous studies, more research is needed to focus on understanding how social responsibility commitment can affect financial reporting quality, as proxied by earnings management practices.Does social responsibility affect banks' earnings management? Does CEO power have a significant effect on the relationship between social responsibility and earnings management of banks and strengthen this relationship?Literature Review2.1. Corporate social responsibility and earnings managementTo understand the link between corporate social responsibility (SR) and earnings management (EM), previous studies have proposed two perspectives: the ethical perspective and the managerial opportunism perspective. The ethical perspective assumes that EM is negatively associated with SR, while the managerial opportunism perspective argues that EM and SR are positively related. This leads us to our first hypothesis:H1. There is a significant relationship between SR and EM.2.2. Corporate social responsibility, earnings management and CEO powerGiven the influence of powerful CEOs on bank’s performance, powerful CEOs play a significant role in both SR input and earnings manipulation. Therefore, CEO power is considered one of the crucial determinants affecting managerial decisions. Hence, CEO power may have a moderating effect on the relationship between SR and EM. Accordingly, we propose the following hypothesis:H2. Powerful CEOs moderate the SR–EM relationship. MethodologyThe statistical population of this research consists of banks enlisted in the Tehran Stock Exchange Market and Iran OTC. The data from 16 banks for the period between 2016 to 2021 have been analyzed to test the research hypotheses. The statistical method employed in this study is the regression model of mixed data using panel data approach with a random effects estimation.ResultsThe obtained results suggest that social responsibility has a negative and significant effect on bank’s earnings management. In other words, as social responsibility increases, earnings management in banks is expected to decrease. Furthermore, the results show that the significant relationship between social responsibility and earnings management is not maintained when the adjusting variable of the CEO's power is included. In other words, the CEO's power does not have a significant effect on the relationship between social responsibility and earnings management.Discussion and ConclusionWith an increase in activities related to social responsibility, banks experience a decrease in earnings management. This observation aligns with the ethical perspective and the signaling theory, which suggest that social responsibility can serve as a tool to reduce earnings management. Banks with higher levels of social responsibility not only exhibit greater transparency regarding their social responsibility initiatives and stronger engagement with stakeholders, but they also tend to engage in less earnings management. Additionally, the study found that CEO power does not moderate the relationship between social responsibility and bank earnings management. This finding contradicts the theoretical foundations and the research background, which propose that CEOs may use social responsibility to gain stakeholder support, manage their reputation, and defend against stakeholder activism. Therefore, it is evident that relying solely on CEO power and characteristics may not lead to accurate decision-making in this domain. Shareholders and other financial decision-makers should consider factors beyond CEO power when attempting to moderate the relationship between social responsibility and earnings management.
