Audit Committee Characteristics and Earnings Quality: Empirical Evidence from Bahrain

Abstract

The main aim of this study is to examine the effect of audit committee (AC) characteristics on earnings quality. A sample of 70 firm-year observations is used from listed firms in Bahrain. The study gives empirical evidence for a period of five years (2015–2019). Data needed for this research is collected from firms' annual reports and corporate governance reports (if provided separately). The sample includes 70 Bahraini firm-year observations. It employs several independent variables including AC independence, AC expertise, AC meetings and AC size. Earnings quality (EQ), the dependent variable, is measured as the absence of earnings management in the sampled firms. The discretionary accruals are used as a proxy for earnings management and implemented using the Modified Jones model (Dechow, 1995). Pearson correlation and multivariate HMR (Hierarchical Multiple Regression) analysis are used. The two HMR models are found to be significant models. The results revealed that some independent variables have positive significant relationship with the earnings quality. The current study recommends that there is a need for future research in other countries, perform comparative analysis of the impact of AC characteristics with earnings quality between listed and non-listed firms.