Earnings management determinants: A study of Egyptian listed firm characteristics post the Egyptian revolution

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Abstract

This research aims to look at how firm characteristics and audit quality can affect the earning management practices in the Egyptian context, within the period of 2011–2019. This period was after the Egyptian revolution and has not been well investigated in Egypt, especially after the new release of corporate governance rules for listing firms. A sample of 157 non-financial listed companies in the Egyptian stock exchange is selected for achieving the research objective through analysing their financial reports. The panel least squares, using the fixed-effect model, is used to test the hypotheses and investigate the relationship between discretional accruals and firm characteristics, where the dependent variable is the earnings management, measured by the discretionary accruals and the independent variables are the firm characteristics (size, financial leverage, age, survival and audit quality). The results illustrate that the relationship between a firm’s financial leverage and earnings management is positive. This study may help the firms to control their financial leverage for avoiding any earnings management practice. The stakeholders should notice such significant firm characteristics in making their own decisions, especially after the COVID-19 pandemic crisis, which may expectedly increase the firm financial leverage, and in turn, some earning management practices can be used intentionally to hide the bad firm performance.

Keywords: Earnings Management, Egyptian Revolution, Financial Reporting Quality, Audit Quality, Information Asymmetry, Financial Leverage, Firm Characteristics, Egyptian Stock Exchange, Panel Least Squares Method

Authors’ individual contribution: Conceptualization — D.H.; Data Curation — E.H.; Formal Analysis — E.H.; Funding Acquisition — E.H. and D.H.; Investigation — E.H.; Methodology — E.H.; Project Administration — E.H. and D.H.; Resources — E.H. and D.H.; Software — E.H. and D.H.; Supervision — E.H. and D.H.; Validation — E.H. and D.H.; Visualization — E.H. and D.H.; Writing — Original Draft — E.H. and D.H.; Writing — Review & Editing — E.H. and D.H.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: C120, C180, G010, G140, G180, G23, G30, G380, G410, M420, M480

Received: 13.10.2021
Accepted: 20.12.2021
Published online: 21.12.2021

How to cite this paper: ElHawary, E., & Hassouna, D. (2021). Earnings management determinants: A study of Egyptian listed firm characteristics post the Egyptian revolution [Special issue]. Corporate Governance and Organizational Behavior Review, 5(2), 165–183. https://doi.org/10.22495/cgobrv5i2sip5