The Association between Audit Committee Characteristics and Earning Management: Evidence from GCC Stock Markets

Authors

Salah Abdel-Hafeez Mostafa Ali, Department of Accounting, College of Business Administration, University of Bahrain, Bahrain\\ Department of Accounting, Faculty of Commerce, Assiut University, EgyptFollow

Abstract

The main objective of this study is to empirically investigate whether the audit committee (AC) characteristics are associated with earnings management (EM) of listed companies on the GCC countries as emerging markets. To achieve the study’s objectives, 532 firm-year observations were used during the period from 2017-2020. A discretionary accrual (DACC), a proxy for EM, was estimated according to the modified Jones’ model. EM/DACC as a dependent variable was regressed with four independent variables, comprising the AC characteristics, namely AC size, AC independence, AC financial expertise, and AC frequent meetings. Some more control variables were added to the regression model. The study findings reveal that the level of EM on the study sample averaged 14.3% upward, which suggests that the corporate governance code could have reduced the EM practices, but it hasn’t prevented it. Also, the results show that EM is negatively and significantly associated with AC independence, AC financial expertise, and AC number of meetings. Moreover, EM is not significantly associated with AC size. The conclusion of this study emphasizes the monitoring role of AC on restricting EM. The findings of this study have wide implications to all stakeholders and stock markets for the role of AC characteristics as internal corporate governance mechanism on restricting EM practices.

Recommended Citation

Abdel-Hafeez Mostafa Ali, Salah (2022) "The Association between Audit Committee Characteristics and Earning Management: Evidence from GCC Stock Markets," Information Sciences Letters: Vol. 11 : Iss. 1 , PP -.
Available at: https://digitalcommons.aaru.edu.jo/isl/vol11/iss1/30