The Relation between Audit Committee Characteristics and Earnings Management: Evidence from Firms Listed on the Egyptian Stock Market

Abstract

Audit committees have drawn more attention globally during the past 20 years. The audit committee, one of the core elements of corporate governance systems, is a powerful tool for regulating and overseeing management. It could have a big impact on how internal firm-board monitoring decisions are made. This study seeks to identify the unique contributions made by each proxy and to provide compelling evidence that demonstrates how an Audit Committee mechanism affects Earnings Management. This paper aims to investigate how the audit committee’s characteristics affect earnings management in Egypt. Using a sample of 80 non-financial Egyptian companies listed on the Egyptian Stock Exchange for the eight financial years from 2012 to 2019. Audit Committee characteristics are represented by Audit Committee independence, Audit Committee size, the frequency of Audit Committee meetings, Audit Committee expertise, and Audit committee gender. Discretionary accruals are used as a proxy for Earnings Management. Panel data regression was used in the archival modeling study. Using a multiple regression model to test the relationship among the variables, the results provide evidence that Audit Committee Size, Audit Committee Expertise and Audit Committee Gender have a significant negative relationship on Earnings Management. Also, there is no significant relationship between Audit Committee Meetings and Earnings Management. Audit Committee Independence has a positive and significant relationship with Earnings Management. This study offers numerous recommendations to the regulatory authorities in Egypt on how to improve and strengthen the internal governance systems of businesses, particularly the Audit Committee.