Corporate social responsibility and earnings management in France: do politically connected CEOs shape ethical reporting?

This study investigates the effect of Corporate Social Responsibility (CSR) on Earnings Management (EM) and how the politically connected CEOs, an underexplored governance dynamic, moderate this relationship. While CSR is often perceived as a mechanism that promotes ethical behavior and transparency, its effectiveness may be compromised in firms with political connections. Using 2,444 firm-year observations from French-listed companies between 2010 and 2022, the results reveal that although CSR constrains earnings manipulation, its effectiveness is weakened in the presence of politically connected CEOs, who may benefit from reduced regulatory scrutiny and use CSR more as a reputational tool than as a genuine governance mechanism. These findings remain robust across alternative econometric specifications that address endogeneity, including two-stage least squares (2SLS) and two-step system GMM estimators. Furthermore, when CSR is disaggregated into its Environmental, Social, and Governance (ESG) pillars, the moderating effect of political connections appears to be heterogeneous across these dimensions.HighlightsOur study highlights how corporate social responsibility interacts with politically connected CEOs to affect earnings management practices in the French context.We focus on the French context due to the country's long-standing historical ties between business and politics and the influence of the ‘grande école’ system in training many leaders in both fields.To the best of our knowledge, our paper is the first to investigate how politically connected CEOs moderate the relationship between CSR and EM.The results of this study provide a new understanding of how the governance role of CSR is weakened in the presence of politically connected CEOs.