The Moderate Effect of Audit Committee Independence on the Board Structure and Real Earnings Management: Evidence from Jordan (original) (raw)
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Board of Directors’ Structure and Real Earnings Management: Jordanian Evidence
The International Journal of Academic Research in Business and Social Sciences, 2019
This research investigated the relationship the board of directors' characteristics (involving board size, board independence, CEO duality and board meeting) have with REM in Jordanian listed firms. The data, which covered 721 firm-year observations for the period of 7 years (2011-2017), were sourced from the annual reports of the listed industrial and service sector companies on Amman Stock Exchange (ASE). The results from data analysis show a non-significant relationship between board independence and REM. However, a significant positive link between board size and REM and between CEO duality and REM were found. In the case of board meeting and REM, a significant but negative link was found between the two variables. In short, the findings of the current study indicate that board of directors' characteristics are a significant determinant of REM, and this could provide more policy insights and research implications for the policy and strategy formulation regarding the credibility of financial reports in Jordan. Yet, the directions of the relationship between board of directors' characteristics and REM could be determined by a contingent variable, which can be determined by the future research.
Recently, high profile scandals and financial crises in the United States, Europe and East Asia, have brought corporate governance issues to the forefront in developing countries, emerging markets and transitional economies. These scandals shake the integrity of accounting information and resulted in a drop in investor confidence. This has made companies need to achieve significant progress to the corporate governance perform in order to recuperate the investors’ confidence of financial reporting quality. To achieve that, this paper proposes a conceptual framework to investigate the relationship between board characteristics (Board independence, size, CEO duality, meetings, and financial expertise) and earning management among industrial companies listed on the Amman Stock Exchange (ASE). Evidence from prior studies suggested that boards of directors are an important part of the firm’s structure and responsible for monitoring the quality of the information contained in financial reports. It is argued that effective board can reduce earnings management.
Board Independence, Audit Quality and Earnings Management: Evidence from Egypt
Using a unique data set for Egyptian firms, we investigate the relationship between board independence, audit quality and earnings management. We test whether firm-level corporate governance provisions matter in an emerging market setting characterised by weak legal enforcement and inadequate external discipline by the market for corporate control. Our results cast doubt on the notion that a higher ratio of non-executive members is associated with lower earnings management. We find that the effect of board independence on earnings management practices is contingent on the levels of ownership held by executive directors and large shareholders as well as the composition of audit committee composed. In addition, the results are consistent with the view that high quality auditors are effective in reducing earnings management.
Recently, high profile scandals and financial crises in the United States, Europe and East Asia, have brought corporate governance issues to the forefront in developing countries, emerging markets and transitional economies. These scandals shake the integrity of accounting information and resulted in a drop in investor confidence. This has made companies need to achieve significant progress to the corporate governance perform in order to recuperate the investors' confidence of financial reporting quality. To achieve that, this paper proposes a conceptual framework to investigate the relationship between board characteristics (Board independence, size, CEO duality, meetings, and financial expertise) and earning management among industrial companies listed on the Amman Stock Exchange (ASE). Evidence from prior studies suggested that boards of directors are an important part of the firm's structure and responsible for monitoring the quality of the information contained in financial reports. It is argued that effective board can reduce earnings management.
Social Science Research Network, 2012
The objective of this paper is to investigate the relationship between audit committee characteristics (namely: audit committee size, financial experience, and audit committee independence) on performance, which includes financial, operating and stock performance. The study sample contained 106 corporations from the financial sector listed in the Amman Stock Exchange Market with a total of 212 observations during the 2008-2009 sample years. The results showed that the audit committee has an impact on financial and stock performance. It does not have an effect on operating performance.
Procedia - Social and Behavioral Sciences, 2012
This study aims to investigate: (1) the relationship between audit commitee independence and earnings quality, and (2) the influence of CEO duality on this relationship. We posit that an independent audit committee is more effective in monitoring the quality of financial statements, hence independence is related to higher earnings quality. We also conjecture that the dual role of CEO and chairman would reduce the effectiveness of independent audit committees. Using a sample of 3,017 non-financial companies listed on Bursa Malaysia from 2005-2010, we find that earnings quality is positively associated with audit committee independence, but the relationship is weakened by the existence of CEO duality. Our results imply that when a CEO has excessive control over the decisions of the board of directors by holding the position of chairman, the monitoring function of independent audit committees to assure high quality of earnings in financial statements becomes ineffective.
Future Business Journal
This paper aims at investigating the effect of board of directors attributes on real earnings management (REM). A panel data of 78 Egyptian listed companies was collected over the period 2008–2017 to test the hypotheses. The results of the system generalized method of moment model revealed that the board size is negatively and significantly correlated with REM proxies, except for abnormal cash flows from operations (ABCFO) measure. Whereas, board meetings are positively and significantly related to REM except for ABCFO. Furthermore, board independence and chief executive officer duality provided varying results due to different REM proxies that have been used in this paper. The results of this study highlight the fact that there is no unified corporate governance (CG) system that fits all countries; therefore, each country should form its CG code in a way that takes into consideration its economic, political, legal, and institutional needs. Furthermore, regulators have the motivatio...
Despite a large number of regulations and standards governing the financial reporting process, earnings management is increasing at an alarming rate in organizations today. The aim of this study is to investigate the impact of board and audit committee characteristics on accruals and real earnings management practices in Pakistan. Design/Methodology/Approach: Earnings management as dependent variable is measured by using two model: Kothari et al., (2005) and Roy chowdhury (2006). Whereas, board size, board independence, CEO duality, audit committee size, audit committee independence and audit committee activity are the independent variables. This study was based on data collected from 235 non-financial firms listed on Pakistan Stock Exchange (PSX) from 2008 to 2015. The relationship was investigated by means of panel data estimation. Findings: The result revealed CEO duality is positively related with accruals earnings management. Whereas, board independence is negatively related and CEO duality, board activity and audit committee independence are positively related with real earnings management. Implications/Originality/Value: The findings of the study are important for investors, regulators, and legislators in their attempt to constrain the incidence of earnings management and improve financial reporting quality.
In this study, we examined the relationship between the characteristics of each board of director, the audit committees and earnings management levels are considered undesirable phenomenon in the financial markets and that conflict with the requirements of transparency in financial reporting. We attempt to determine each of the characteristics for board director and Audit Committees, impacting on levels of earnings management in Egyptian companies registered on the Stock Exchange in Arab Republic of Egypt, we relied on the previous studies and the corporate government code of A.R.E to identify the characteristics that will be studied.
Independent Board, Earnings Management, and Audit Quality
TEST Engineering & Management, 2020
This study aims to examine the effect of independent board on earnings management with auditor quality as moderating. Auditor quality is the focus of this study, because the auditor's reputation is predicted to reduce the level of earnings manipulation. Auditor quality is measured using industry specialties that describe the market share of audit services in the same industry and auditor size (big four). Both auditor quality measurements encourage researchers to examine the difference in influence between the quality of industry specialization auditors and big four auditors. The study was conducted on manufacturing companies listed on the Indonesia Stock Exchange in the period 2013-2016 with 130 companies and the number of observations was 322 cases. The research design uses the Moderating Regression Analysis with audit quality variables as moderating. The results of this analysis conclude that the interaction of independent boards with big four auditors increases the effectiveness of monitoring and monitoring the financial reporting process. This is likely related to the auditor's selection decision as the authority of the board of boards, while the independent board reinforces the decision of the choice of a reputable auditor (big four auditor). This study aims to examine the effect of independent board on earnings management with auditor quality as moderating. Auditor quality is the focus of this study, because the auditor's reputation is predicted to reduce the level of earnings manipulation. Auditor quality is measured using industry specialties that describe the market share of audit services in the same industry and auditor size (big four). Both auditor quality measurements encourage researchers to examine the difference in influence between the quality of industry specialization auditors and big four auditors. The study was conducted on manufacturing companies listed on the Indonesia