Board independence, audit quality and earnings management: evidence from Egypt

Khalil, Mohamed; Ozkan, Aydin

Abstract

Using a unique dataset 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. In addition, the results are consistent with the view that high-quality auditors are effective in reducing earnings management. JEL Classification: M41, M48

Citation

Khalil, M., & Ozkan, A. (2016). Board independence, audit quality and earnings management: evidence from Egypt. Journal of emerging market finance, 15(1), 84-118. https://doi.org/10.1177/0972652715623701

• Acceptance Date: Sep 17, 2015
• Online Publication Date: Feb 7, 2016
• Publication Date: 2016-04
• Deposit Date: Oct 26, 2015
• Publicly Available Date: Nov 23, 2017
• Journal: Journal of emerging market finance
• Print ISSN: 0972-6527
• Publisher: SAGE Publications
• Peer Reviewed: Peer Reviewed
• Volume: 15
• Issue: 1
• Pages: 84-118
• DOI: https://doi.org/10.1177/0972652715623701
• Keywords: Earnings managment; Board independence; Audit quality; Corporate governance
• Public URL: https://hull-repository.worktribe.com/output/380151
• Publisher URL: http://emf.sagepub.com/content/early/2016/02/05/0972652715623701.abstract
• Additional Information: Author's accepted manuscript of article published in: Journal of emerging market finance, 2016, v.15, issue 1.
• Contract Date: Nov 23, 2017