Financial reports are a meaningful instrument in describing the performance of an industry. One of the significant components of the financial statements is a component of profit. Profit is used to measure the performance and increase of an entity. Profit data in financial reports is the primary data in making investment decisions. The earnings data is often used as manipulation material for management actions to maximize satisfaction. This action was tried for its interests by making specific accounting policies so that profits could be adjusted, increased, or decreased according to their wishes, and the attitude of the management was known as Earnings Management (Abduh & Rusliati, 2018). Over the last few decades, the business world has been influenced by a growing understanding of industrial social responsibility. In practice, industries that practice CSR activities are bound to share transparent and reliable financial data (Kim et al., 2012) and display a commitment to ethical and accountable attitudes (Jones, 1995). However, there is a reason that CSR can be used as a mechanism to achieve managers’ self-interest goals by distorting income data (Almahrog et al., 2018).

Because earnings management (EM) is perceived in the literature as an ethical issue, some research has attempted to explore whether EM and CSR are interrelated. However, some research has suggested that EM and CSR are negatively related. (Christensen, 2016, Almahrog et al., 2018, Kim et al., 2018, Sial et al., 2019), broadly show that an industry with a strong commitment towards CSR tends not to participate in EM. On the other hand, Jouber (2019), Mohmed et al., (2019), Muttakin et al., (2015), and Scholtens & Kang (2013) create a positive bond between EM and CSR as well as suggests that larger-level industries use EM for CSR activities to hide managerial opportunism.

So far, researchers have found few research that uses good corporate governance to strengthen corporate social responsibility ties to earnings management applications in the industry. Some studies have studied the direct relationship between GCG and earnings management and have shown positive results, namely Larastomo et al., (2016) & Abduh & Rusliati (2018), who reported on the industry. Those who have practiced good corporate governance can create an excellent industrial, financial performance not to affect earnings management applications. On the other hand, the research tried by Mersni & Othman (2016), Mahdalena et al., (2019) have negative results which report that many earnings management practices require the industry to practice good corporate governance to minimize, let alone prevent it from overcoming agency problems (agency theory) and is believed to be able to reduce earnings management practices.

Researchers use the good corporate governance variable as a moderating variable because problems that arise between agents (managers) and principals (owners) will increase moral hazard, such as managers not carrying out responsibilities as stated in their work contracts. Hence, GCG implementation plays a strategic role in helping business credibility. Company processes that will encourage disclosure of corporate social responsibility relate to one of the principles of GCG, namely transparency, and can suppress earnings management practices in the company. Based on this basis in this study, we want to use good corporate governance as a moderating variable. This study also uses control variables, such as return on assets, board meetings, and board of directors, because several previous studies have shown significant results on earnings management (Rusdiyanto & Narsa, 2020), (Sastrawati & Hatane, 2016)). Several other factors may affect the dependent variable. If these factors are not well controlled, they can affect the existing dependent variable, thereby reducing the study’s accuracy so that the researcher uses these variables as control variables.

Given that empirical findings remain inconclusive, further research is needed to understand how CSR and GCG initiatives can affect the quality of corporate reporting by reducing EM practices Mersni & Othman, (2016); Almahrog et al., (2018). Therefore, in connection with the description above, this study seeks to fill this gap by examining the effect of CSRD on earnings management and examining each theme (environment, energy, human resources, community development, other CSR activities) in CSR to know which themes are involved can reduce EM practice. In addition, this paper wants to know that the GCG variable can moderate the CSRD and EM variables.

The study uses a quantitative approach and panel data regression using 170 firm-year observations of consumer goods industries listed in IDX for 2015-2019. This study uses the measurement of the CSRD using a combined corporate social responsibility matrix from three countries and examining each theme (environment, energy, human resources, community development, other CSR activities) in CSR to know which pieces are involved can reduce EM practice. The result suggests product & innovation and community development have a negative and significant influence on earnings management. This research also shows that the positive effect of community development and others CSR activities on earnings management is strengthened with good corporate governance. This proves that companies with higher earnings management levels use CSR activities to disguise opportunistic managerial behavior. Still, companies that make disclosures on product & innovation and community development activities can limit their earnings management. Then, the implementation of GCG, which is related to transparency, will cause less motivation to practice earnings management.


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Tommy Andrian, S.E., M.Ak, Cert.DA.