Governance mechanisms and earnings management practices: evidence from Egypt

Abstract

This study develops an aggregate corporate governance index (ACGINX) composed of four individual corporate governance (CG) indices - disclosure and transparency index, board of directors index (BoDINX), shareholders' rights and investor relations index and ownership and control structure index - to investigate the assumed effect of each sub-index and the ACGINX on mitigating the practices of earnings management in the Egyptian context during 2008-2016. In addition to the effect of board size, institutional ownership, and ownership concentration, the current study executes panel data analysis to regress the practices of earnings management on the above-mentioned CG mechanisms. It does so after controlling for seven variables that may affect this relationship, i.e., firm size, leverage, state ownership, losses, book-market ratio, type of audit report, and year effect. The results are inconclusive, showing traded-off significant relationships among control variables and earnings management practices assessed via different earnings management measures.