The CSR Performance and Earning Management Practice on the Market Value of Conventional Banks in Indonesia

Abstract

This study examined the effect of the components of corporate social responsibility (CSR) and earnings management on market value, measured using Tobin's Q. CSR is measured by using KLD Index, while earnings management used discretionary loan loss provision. The GMM-SYS (generalized method of moment system) dynamic panel data method is employed to examine the research framework on conventional banks listed in Indonesia Stock Exchange. Among six components in CSR disclosures, only corporate governance, environmental and product disclosures are favorable for bank's market value. Furthermore, earnings management had a positive impact on market value. Empirical result indicated that CSR functions as a part of bank strategic moves in order to survive the highly dynamical business environment. Since CSR inflicts additional costs for the company, they must perform CSR efficiently while maintaining a strong relationship with shareholders. This study contributes to CSR and financial management literature by finding the nature of CSR effects as future strategic investment.