THE EFFECT OF AUDIT COMMITTEE CHARACTERISTICS ON EARNINGS MANAGEMENT PRACTICES: AN EMPIRICAL STUDY ON INDUSTRIAL COMPANIES EVIDENCE FROM ARAB COUNTRIES
Loading...
Date
2024-03-10
Authors
Jehad Nathir Farouq Al-Selkhi
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
Abstract
The purpose of this study is to explore the influence of audit committee characteristics on the practices of earnings management. So, the study independent variables are the audit committee characteristics including independence, gender diversity, frequency of meetings, experience, and size. The study is a quantitative one that uses the descriptive analytical approach to examine its hypotheses based on the data that belongs to a sample consists of the industrial companies listed on the stock exchanges of Palestine, Jordan, Qatar and Kuwait, subject to the data availability during the study period from 2016 to 2021. As a result, the data of 76 companies for six years totaling 456 observations, was considered in the study analyses. This data was obtained from the annual reports of these companies available at the official websites of stock exchanges and the companies.
Fixed effects and random effects linear regression were used to examine the effect of audit committee characteristics on earnings management. The most important findings reveal that gender diversity, the frequency of audit committee meetings, and the experience of audit committee members have a negative statistically significant effect on earnings management behavior. Implying that earnings management behavior by the companies included in the study sample decreases as gender diversity, the frequency of meetings, and the experience of audit committee members increase. Furthermore, the results show a positive significant effects of audit committee member size and operating cash flow on earnings management behavior. This indicates that earnings management increases when audit committee member size and cash flows from operating activities increase.
The study concludes that there are shortcomings in audit committees that may not perform their role efficiently, especially in depressing earnings management. This may be due to non-compliance with corporate governance rules and corporate laws. Consequently, the sample companies must adhere to applying the corporate governance code and corporate laws, especially with regard to the independence of the audit committee and the size of the audit committee. A major limitation of the study is the unavailability of data on certain characteristics of audit committees. Consequently, important factors such as the legal qualifications of audit committee members were disregarded. Future studies could expand the research by including additional characteristics such as the age and remuneration of committee members.
Keywords: Corporate Governance, Audit Committee Characteristics, Modified Jones Model, Public Industrial Companies, Arab Countries.