Royal Family Members and Corporate Governance Characteristics: The Impact on Earnings Management in UA

Abstract

This study examines the association between Royal family members on the board of directors and earnings management in the United Arab Emirates (UAE). Panel data was sourced from the annual and corporate governance reports of companies listed in two leading markets in the UAE: Abu Dhabi Exchange Security (ADX) and Dubai Financial Market (DFM). Final data resulted in 437 observations for the period from 2011 to 2018. The findings of this study concluded that Royal family members on the board of UAE listed companies is negatively associated with earnings management. This study provides evidence of the role played by elite groups (Royal family members) in the UAE in enhancing the role played by the board of directors. The study also found that board meetings and audit committee meetings are positively associated with earnings management, while audit committee expertise and profitability negatively associated with earnings management. However, board size, board independence, audit committee independence, firm size and firm leverage had insignificant association with earnings management. The paper contributes to the existing theory and empirical evidence of how internal governance mechanisms add value to the company by reducing earnings management and enhancing the quality of financial reporting.