The Effects of Corporate Governance (CG) on Saudi Arabian Companies' Earnings Quality

Abstract

High earnings quality (EQ) is one of the company's pillars of long-term success in building investor confidence. This study investigates whether or not corporate governance (CG) affects the EQ of non-financial companies listed on the Saudi Arabian Stock Exchange known as Tadawul. This research study uses data from a sample of 482 firm-year observations of these companies in the period from 2009 to 2013. The author adopts the Generalized Method of Moments (GMM) regression model. This research study contributes to the current literature by providing new evidence of the effect of CG on the EQ of the Saudi Arabian non-financial companies listed on the Tadawul. Specifically, not all CG attributes affect each company's EQ in the same way. This study's findings show that important CG attributes, which enhance the company's EQ, are the number of the company's independent directors, the separation of the dual role between the company's CEO and chairperson, and the financial or accounting expertise of the members of the company's audit committee members.