Accruals Quality and Corporate Social Responsibility In addition to the univariate test reported in Table 3, we provide direct evidence of the association between accruals quality and CSR in Table 4. We regress the AQ measure, (т(г), on the CSR dummy variable while controlling for other confounding factors documented in Dechow and Dichev (2002). The estimated coefficient of CSR is nega- tive and significant. This result suggests that firms showing more social responsibility have a lower standard deviation of current accruals residuals. A low standard deviation of Table 4 Regression of accruals quality on corporate social responsibility a(e' = bo -f- b' CSR/ + + Z^Size, 4- £4<7(Sales), + b5o(C ash), + ¿^(NI), + ¿^FreqNNI, + st Variable Estimated coefficient Intercept 0.018*** (t value) (6.37) CSR -0.001** ( t value) (-2.20) LnOC 0.005*** (t value) (10.20) Size -0.002*** (rvalue) (-11.4) a(Sales) 0.036*** (t value) (16.01) ťj(Cash) 0.159*** (/ value) (17.58) cr(NI) 0.040*** (t value) (6.27) FreqNNI 0.008*** (t value) (5.89) No. of observations 6956 Adjusted R 2 28.8% ***, **, * indicate significance at the 1, 5, and 10% levels, respectively In Table 4, we examine the impact of corporate social responsibility (CSR) on accruals quality using a multiple regression model. The dependent variable is the standard deviation of current accruals residuals, a(e). A higher o(e) indicates a poor mapping of accruals into cash flows, namely a lower accruals quality, vice versa. Our interested test variable is CSR. An estimated significant positive coefficient implies that socially responsible firms report higher quality accruals <т(г) is our measure of AQ and is defined in Table 2; CSR index is described in Table 1; LnOC, Size, a(Sales), <r(Cash), <r(NI) and FreqNNI are defined in Table 2 residuals implies an improved mapping of accruals into cash flows; in another words, more SRFs provide higher quality accruals in their reported financial statements. Our research hypothesis HAi is supported. Consistent with Dechow and Dichev (2002), we find a significant and negative coefficient for size, but significant positive coefficients for the operating cycle (LnOC), the standard deviations of sales (<x(Sales)), of cash flows (<r(Cash)) and of net income (<x(NI)), and the frequency of negative income (FreqNNI). This result implies that larger companies have higher accruals quality, represented by lower d(e). The volatility in sales, cash flows, and net income, as well as the frequency of negative income appear to lower accruals quality. The above results indicate that CSR, the variable of interest, has incremental explanatory power over the control variables in explaining the improved accruals quality. Robustness Tests In the extant literature, there is no agreement on the mea- surement of CSR. We net each firm's strengths and con- cerns across seven issue areas as reported in the KLD database. This method may increase the noise in our measure of CSR. To refine our measure of CSR, we replace the CSR index dummy variable with all of the component measures of CSR in Eq. 3 and rerun the regression. The untabulated results show that only corporate governance, the environment, the product, and human rights have incremental explanatory power over the control variables.
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- Test, Corporate social responsibility, Socially responsible investing, Dechow