Impact of Corporate Governance and External Audit on Earning Management. Evidence from the Financial Sector of United Arabs of Emirates (UAE)

Abstract

The study focus towards presenting a clear picture of the impact of corporate governance along with external audit on earning management based in UAE. The effect of corporate governance and external audit on earning management was examined using generalized linear model. The results were compiled to research whether corporate governance characteristics and external auditor variables compel earning management. The findings aid the Securities Exchange members in the assessment of the parts of Corporate Governance framework and also help the External Auditor in improving the nature of reported income. The present research highlights two relevant implications of findings. First, the increasing in CEO duality and board activity affects earning management of financial sector in UAE; second the positive influence of ownership structure and board size on Discretionary accruals (DA). The study recommends having a small size board, not to separate between the role of chairman and CEO, and that increasing board activity will reduce level of earning management.