Audit Committee Characteristics and Earnings Management: The Moderating Effect of Accountability of the State Authority in Egypt

Abstract

Global and domestic business scandals have eroded public confidence in corporate financial reporting. Egypt, which has one of the largest stock markets in the Middle East and North Africa, initiated reforms in financial reporting, auditing and corporate governance in response. The audit committee (AC) plays a vital role in these reforms. Therefore, this study examined the relationship between AC characteristics and earnings management (EM) in Egypt. In addition, state authority accountability was included as a moderating variable in the study. From 2014 to 2016, a sample of 402 observations across different sectors of listed companies was analysed using multiple linear regression. The results revealed a negative correlation between AC meetings and EM across the entire sample. Furthermore, there was an insignificant relationship between AC independence and AC size with EM. No effect of state authority accountability was found on the relationship between AC characteristics and EM. The study’s significance lies in its ability to shed light on the effectiveness of corporate governance reforms in Egypt, with specific reference to the role of AC and the potential influence of state authority accountability. Its findings have practical implications for policymakers, businesses and academics, all of whom can use this research to advance corporate governance practices and contribute to the sustainable growth of the Egyptian economy.

Keywords: Audit committee; earnings management; Egypt; corporate governance; accountability of the state authority