Corporate Social Responsibility, Financial Reporting Quality and Earnings Management: Sustainable Model

Abstract

Corporate social responsibility (CSR) has developed into one of the strategic pillars of sustainable corporate governance because of ethical corporate behavior, stakeholder engagement, corporate environmentalism, and financial transparency. However, earnings management practices have continued to erode the credibility of financial reporting and the confidence of investors despite the emphasis on the reporting of Environmental, Social, and Governance (ESG) information. This research is an attempt to explore the interaction between CSR, financial reporting quality (FRQ), and earnings management (EM) and proposes a TIF-MCDM approach to assess the sustainability of corporate development under uncertainty. Using the theories of Stakeholder Theory, Agency Theory, Legitimacy Theory, and Signaling Theory, the research is based on the assumption that better CSR performance will improve financial reporting quality and reduce earnings management, with FRQ as the mediating mechanism. In an attempt to resolve the ambiguity involved in expert opinions, the fuzzy model being used in this study employs the Triangular Intuitionistic Fuzzy Numbers (TIFNs) and FAHP weighting method to construct an index known as Sustainable Corporate Development Index (SCDI), which maximizes CSR and FRQ but minimizes earnings management. It is anticipated that the findings will reveal that corporations adopting socially responsible behavior are characterized by financial reporting quality and have a low level of opportunistic reporting. The fuzzy model serves as an effective decision-making aid for managers, investors, auditors, regulators, and policymakers while contributing to sustainable corporate governance consistent with ESG criteria and UN Sustainable Development Goals 8, 12, and 16.