The Moderating Effect of Accounting Expertise on the Relationship Between Board Characteristics and Earnings Management "Evidence from Iraq"
DOI:
https://doi.org/10.14738/assrj.1112.18067Keywords:
Board Characteristics, Accounting Expertise, Earnings Management, Non-Financial CompaniesAbstract
The current study aims to examine how board characteristics impact earnings management in non-financial companies. Its primary objective is to ascertain whether accounting expertise modifies the association between board characteristics and earnings management. The data utilised in this study came from 598 firm-year observations from 46 non-financial sector businesses registered on the Iraqi Stock Exchange between 2010 and 2022. To take care of potential endogeneity and reverse causality, the study employed the system generalised method of moments (SGMM) estimate model. The findings revealed a positive and significant relationship between gender diversity, busyness, board independence, and earnings management. Conversely, the results show that the relationship between board independence, busyness, gender diversity, and earnings management is significantly and negatively moderated by accounting expertise. Thus, by investigating the subject experimentally in Iraq, this study adds to the body of existing literature. Additionally, by investigating whether accounting expertise moderates the association between board features and EM, the study fills the gap in the literature.
References
P. N. Githaiga, P. Muturi Kabete, and T. Caroline Bonareri, “Board characteristics and earnings management. Does firm size matter?,” Cogent Bus. Manag., vol. 9, no. 1, 2022, doi: 10.1080/23311975.2022.2088573.
P. M. Healy and J. M. Wahlen, “A Review of the Earnings Management Literature and Its Implications for Standard Setting,” Account. Horizons, vol. 13, no. 4, pp. 365–383, Dec. 1999, doi: 10.2308/acch.1999.13.4.365.
Y. A. Al-Matari, “Does the Expertise of the Audit Committee Chairperson Moderate the Association Between Audit Committee Attributes and Firm Performance?,” J. Gov. Regul., vol. 11, no. 4 Special Issue, pp. 365–373, 2022, doi: 10.22495/jgrv11i4siart17.
A. Klein, “Firm Performance and Board Committee Structure,” J. Law Econ., vol. 41, no. 1, pp. 275–304, Apr. 1998, doi: 10.1086/467391.
M. C. Jensen and W. H. Meckling, “Theory of the firm: Managerial behavior, agency costs and ownership structure,” J. financ. econ., vol. 3, no. 4, pp. 305–360, Oct. 1976, doi: 10.1016/0304-405X(76)90026-X.
E. F. Fama and M. C. Jensen, “Separation of Ownership and Control,” J. Law Econ., vol. 26, no. 2, pp. 301–325, Jun. 1983, doi: 10.1086/467037.
E. Arioglu, “The affiliations and characteristics of female directors and earnings management: evidence from Turkey,” Manag. Audit. J., vol. 35, no. 7, pp. 927–953, 2020, doi: 10.1108/MAJ-07-2019-2364.
C. I. Asogwa, G. N. Ofoegbu, J. I. Nnam, and O. D. Chukwunwike, “Effect of corporate governance board leadership models and attributes on earnings quality of quoted nigerian companies,” Cogent Bus. Manag.,
S. P. Ferris, N. Jayaraman, and M.-Y. (Stella) Liao, “Better directors or distracted directors? An international analysis of busy boards,” Glob. Financ. J., vol. 44, p. 100437, May 2020, doi: 10.1016/j.gfj.2018.05.006.
M. S. Beasley, “An empirical analysis of the relation between the board of director composition and financial statement fraud,” Account. Rev., vol. 71, no. 4, pp. 443–465, 1996, doi: 10.2469/dig.v27.n2.79.
S. Turley and M. Zaman, “Audit committee effectiveness: informal processes and behavioural effects,” Accounting, Audit. Account. J., vol. 20, no. 5, pp. 765–788, Sep. 2007, doi: 10.1108/09513570710779036.
O. T. Hazzaa, D. F. Abdullah, and A. M. Sadaa, “INFLUENCE OF CEO CHARACTERISTICS Jo u rn a l P of,” J. Open Innov. Technol. Mark. Complex., p. 100290, 2024, doi: 10.1016/j.joitmc.2024.100290.
A. M. Zalata, C. G. Ntim, M. H. Alsohagy, and J. Malagila, Gender diversity and earnings management: the case of female directors with financial background, vol. 58, no. 1. Springer US, 2022. doi: 10.1007/s11156-021-00991-4.
A. Huu Nguyen, D. Thuy Doan, and L. Ha Nguyen, “Corporate Governance and Agency Cost: Empirical Evidence from Vietnam,” J. Risk Financ. Manag., vol. 13, no. 5, p. 103, May 2020, doi: 10.3390/jrfm13050103.
S. Terjesen and R. Sealy, “Board Gender Quotas: Exploring Ethical Tensions From A Multi-Theoretical Perspective,” Bus. Ethics Q., vol. 26, no. 1, pp. 23–65, Jan. 2016, doi: 10.1017/beq.2016.7. 242
A. Kirsch, “The gender composition of corporate boards: A review and research agenda,” Leadersh. Q., vol. 29, no. 2, pp. 346–364, Apr. 2018, doi: 10.1016/j.leaqua.2017.06.001.
A. A. Gull, M. Nekhili, H. Nagati, and T. Chtioui, “Beyond gender diversity: How specific attributes of female directors affect earnings management,” Br. Account. Rev., vol. 50, no. 3, pp. 255–274, Apr. 2018, doi: 10.1016/j.bar.2017.09.001.
H. J. Hammadi and M. R. Jassim, “The Effect Of The Demographic Characteristics Of The Board Of Directors On The Quality Of Receivables: A Study On A Sample Of Companies Listed In The Iraqi Stock Exchange,” Tikrit J. Adm. Econ. Sci., vol. 18, no. 58, 1, pp. 56–73, 2022, doi: 10.25130/tjaes.18.58.1.4.
A. Washali, “Board Diversity and Its Impact on Corporate Performance of Public Companies Listed in Amman Stock Exchange: The Case of Banks and Insurance Companies,” pp. 467–487, 2019.
aead S. Dakhil., M. R. Jassim, and A. H. Fares, “The Impact of Demographic Characteristics of Board directors on Unconditional conservatism: A Study on a Sample of Companies Listed on the Iraq Stock Exchange,” J. Bus. Econ. Appl. Res., vol. 1, no. 1, pp. 269–286, 2021.
Y. A. Al-Matari, “Do the characteristics of the board chairman have an effect on corporate performance? Empirical evidence from Saudi Arabia,” Heliyon, vol. 8, no. 4, p. e09286, 2022, doi: 10.1016/j.heliyon.2022.e09286.
M. Fahlevi, M. Gt, and S. Aisjah, “The impact of board independence and CEO education on earning manipulation beneish M-score models,” Test Eng. Manag., vol. 83, no. March-April, pp. 18264–18276, 2020, [Online]. Available: http://www.testmagzine.biz/index.php/testmagzine/article/view/6957/5365
S. D. Wulandari, N. Indrawati, A. S. Program, A. S. Program, and A. S. Program, “Chief Financial Officer Accounting Education,” Int. J. Econ. Bus. Manag. Res., vol. 5, no. 09, pp. 164–176, 2021.
H. A. N. Al-Refiay, “The Effect of Audit Committee Chair Characteristics in Earnings Management: Evidence from the UK,” J. Baghdad Coll. Econ. Sci., 2021.
M. W. A. Associate, “The Role of Corporate Governance in Controlling the Earnings Management Practices of Palestinian Shareholding Industrial Companies: A Field Study Dr.,” Arab J. Adm., vol. 39, no. 2, pp. 99–124, 2019, doi: 10.21608/aja.2019.36042.
L. Ioualalen, H. Khemakhem, and R. Fontaine, “The Impact of Audit Committee Characteristics on Earnings Management: A Canadian Case Study,” Case Stud. Bus. Manag., vol. 2, no. 1, p. 68, Jun. 2015, doi: 10.5296/csbm.v2i1.7901.
J. Sun, G. Liu, and G. Lan, “Does Female Directorship on Independent Audit Committees Constrain Earnings Management?,” J. Bus. Ethics, vol. 99, no. 3, pp. 369–382, 2011, doi: 10.1007/s10551-010-0657-0.
S. N. Abdullah and K. N. I. K. Ismail, “Women directors, family ownership and earnings management in Malaysia,” Asian Rev. Account., vol. 24, no. 4, pp. 525–550, 2016, doi: 10.1108/ARA-07-2015-0067.
J. M. García Lara, B. García Osma, A. Mora, and M. Scapin, “The monitoring role of female directors over accounting quality,” J. Corp. Financ., vol. 45, pp. 651–668, Aug. 2017, doi: 10.1016/j.jcorpfin.2017.05.016.
A. Ujunwa, “Board characteristics and the financial performance of Nigerian quoted firms,” Corp. Gov., vol. 12, no. 5, pp. 656–674, 2012, doi: 10.1108/14720701211275587.
L. H. H. Weber, “Is Audit Committee Expertise Related to Earnings Quality? Evidence from Germany,” J. Manag. Issues, vol. 32, no. 3, pp. 294–317, 2020, [Online]. Available: http://eds.a.ebscohost.com/eds/pdfviewer/pdfviewer?vid=0&sid=361c5099-560d-4b55-b212-8cc6b2a3e188%40sessionmgr4006 243
S. M. Pulungan, “Accounting Conservatism Analysis in Indonesia after Adoption of IFRS and Relation to the Characteristics of the Board As One of the Mechanism of Corporate Governance,” Soc. Sci. Res. Netw., pp. 1–26, 2014.
R. Walton and M. A. Tribbitt, “Examining the impact of gender power and gender diversity within the top management team on firm performance and firm risk,” Am. J. Bus., vol. 38, no. 1, pp. 22–37, 2023, doi: 10.1108/ajb-05-2022-0081.
J. K. Agyemang, “The Relationship Between Audit Committee Characteristics and Financial Performance of Listed Banks in Ghana,” Res. J. Financ. Account., vol. 11, no. 10, pp. 22–35, 2020, doi: 10.7176/rjfa/11-10-
H. M. Galal, M. M. Soliman, and M. B. Bekheit, “The Relation between Audit Committee Characteristics and Earnings Management: Evidence from Firms Listed on the Egyptian Stock Market,” Am. J. Ind. Bus. Manag.,
S. T. Kangea, T. Nasieku, and W. Muturi, “Effect of Board Diversity on Earnings quality of Non-Financial Firms Listed at the Nairobi Securities Exchange,” J. Appl. Financ. Bank., vol. 12, no. 3, pp. 55–75, 2022, doi: 10.47260/jafb/1234.
R. Umer, N. Abbas, and S. Hussain, “The Gender Diversity and Earnings Management Practices: Evidence from Pakistan,” CITY Univ. Res. J., vol. 2, no. 10, pp. 342–357, 2020.
M. Usman, J. Nwachukwu, and E. Ezeani, “The impact of board characteristics on the extent of earnings management: conditional evidence from quantile regressions,” Int. J. Account. Inf. Manag., vol. 30, no. 5, pp. 600–616, 2022, doi: 10.1108/IJAIM-05-2022-0112.
A. D. Sakhil and S. T. Ali, “Profit Management, Board Independence and their Interactive Effects on Operational Cost Stability in Companies Listed on the Iraqi Stock Exchange Affiliation,” Al-Kut Univ. Coll. J., 2022.
A. Zarefar and I. M. Narsa, “Do corporate governance drive firm performance? Evidence from Indonesia,” Gest. e Prod., vol. 30, no. April, 2023, doi: 10.1590/1806-9649-2022V29E7322.
E. M. A. Alsayani, M. N. Mohamad Nor, and E. M. Al-Matari, “Audit committee’s chairman characteristics and auditor choice: an empirical evidence from Malaysia ACE market,” Cogent Bus. Manag., vol. 10, no. 1, 2023, doi: 10.1080/23311975.2022.2156086.
A. Hamdan, “The Impact of Board Interlocking on Firm Performance,” Arab J. Adm. Sci., no. November 2019, 2020.
K. Kamaludin, S. Sundarasen, and I. Ibrahim, “Moderation effects of multiple directorships on audit committee and firm performance: A middle eastern perspective,” Cogent Bus. Manag., vol. 10, no. 1, 2023, doi: 10.1080/23311975.2023.2194147.
A. Hamdan, “The role of the audit committee in improving earnings quality: The case of industrial companies in GCC,” J. Int. Stud., vol. 13, no. 2, pp. 127–138, 2020, doi: 10.14254/2071-8330.2020/13-2/9.
N. Sultana, H. Singh, and A. Rahman, “Experience of Audit Committee Members and Audit Quality,” Eur. Account. Rev., vol. 28, no. 5, pp. 947–975, 2019, doi: 10.1080/09638180.2019.1569543.
S. P. Ferris and M. Y. Liao, “Busy boards and corporate earnings management: an international analysis,” Rev. Account. Financ., vol. 18, no. 4, pp. 533–556, 2019, doi: 10.1108/RAF-07-2017-0144.
C. Ghafran, N. O’Sullivan, and S. Yasmin, “When does audit committee busyness influence earnings management in the UK? Evidence on the role of the financial crisis and company size,” J. Int. Accounting, Audit. Tax., vol. 47, no. May, 2022, doi: 10.1016/j.intaccaudtax.2022.100467.
H. H. Huang and C. Wang, “Through the Grapevine : The Effect of CFO Network Centrality on Financial Reporting Quality,” China Account. Financ. Rev., vol. 22, no. 2, pp. 1–46, 2020.
Y. A. Al-Matari, “Does the expertise of the audit committee chairperson moderate the association between audit committee attributes and firm performance?,” J. Gov. Regul., vol. 11, no. 4, special issue, pp. 365–373, Dec. 2022, doi: 10.22495/jgrv11i4siart17.
J. Pfeffer, “Size, Composition, and Function of Hospital Boards of Directors: A Study of Organization-Environment Linkage,” Adm. Sci. Q., vol. 18, no. 3, p. 349, Sep. 1973, doi: 10.2307/2391668.
N. Q. Abdulkarem and M. R. Jassim, “The impact of the quality of the external audit on real earnings management: An applied study on a sample of companies listed in the Iraq Stock Exchange,” Tikrit J. Adm. Econ. Sci., vol. 18, no. 58, 1, pp. 56–73, 2022, doi: 10.25130/tjaes.18.58.1.4.
S. Abraham and P. Cox, “Analysing the determinants of narrative risk information in UK FTSE 100 annual reports,” Br. Account. Rev., vol. 39, no. 3, pp. 227–248, Sep. 2007, doi: 10.1016/j.bar.2007.06.002.
E. F. Fama, “Agency Problems and the Theory of the Firm,” J. Polit. Econ., vol. 88, no. 2, pp. 288–307, Apr. 1980, doi: 10.1086/260866.
E. Ezeani, R. Salem, F. Kwabi, K. Boutaine, Bilal, and B. Komal, “Board monitoring and capital structure dynamics: evidence from bank-based economies,” Rev. Quant. Financ. Account., vol. 58, no. 2, pp. 473–498, Feb. 2022, doi: 10.1007/s11156-021-01000-4.
W. Xuezhou, R. Y. Hussain, H. Hussain, M. Saad, and S. A. Qalati, “Analyzing the impact of board vigilance on financial distress through the intervention of leverage structure and interaction of asset tangibility in the non-financial sector of Pakistan,” Int. J. Financ. Eng., vol. 09, no. 02, p. 1142, Jun. 2022, doi: 10.1142/S2424786321500043.
S. S. M. Hassan, “The impact of board of directors’ characteristics on financial distress: Empirical evidence from Egypt using logit and discriminant analysis models.,” Sci. J. Financ. Commer. Stud. Res., vol. 3, no. 1, pp. 205–234, Jan. 2022, doi: 10.21608/cfdj.2021.207373.
N. K. Sandeep Goel, “Is earnings management related to board independence and gender diversity? Sectorwise evidence from India.” p. Int. J. Discl. Gov., 2022.
S. Cho and C. Chung, “Board Characteristics and Earnings Management: Evidence from the Vietnamese Market,” J. Risk Financ. Manag., vol. 15, no. 9, 2022, doi: 10.3390/jrfm15090395.
S. M. Adous, S. Y. Al-Abdallah, and L. M. Wedyan, “The Impact of Board of Directors Characteristics on Reducing Earnings Management,” Acad. Account. Financ. Stud. J., vol. 25, no. 3, p. 2635, 2021.
A. M. Ahmed and I. Hágen, “Corporate Governance and Its Relationship with Financial Performance in Iraq,” Acta Carolus Robertus, vol. 13, no. 1, pp. 76–89, Jun. 2023, doi: 10.33032/acr.4099.
A. A. Binashour, A. S. Albairaq, E. M. Sulaiman, A. F. Hayek, and I. Hazarika, “The Impact Of Board Of Director Characteristics On Earning Management In The Real Estate Companies Listed United Arab Emirates,” Acad. Account. Financ. Stud. J., vol. 12, no. SpecialIssue 1, pp. 1–12, 2021.
I. Saleh, M. Abu Afifa, and A. Alkhawaja, “Internal corporate governance mechanisms and earnings manipulation practices in MENA countries,” Econ. Res. Istraz. , vol. 36, no. 2, pp. 1–26, 2023, doi: 10.1080/1331677X.2022.2134902. 245
N. Orazalin, “Board gender diversity, corporate governance, and earnings management: Evidence from an emerging market,” Gend. Manag., vol. 35, no. 1, pp. 37–60, 2020, doi: 10.1108/GM-03-2018-0027.
D. M. H. F. A. A. A. H. J. A. A. S. O. Qeshta, “Audit Committee Characteristics and Firm Performance: Evidence from the Insurance Sector in Bahrain,” Rev. Gestão Inovação e Tecnol., vol. 11, no. 2, pp. 1666–1680, 2021, doi: 10.47059/revistageintec.v11i2.1789.
M. Qeshta, “Audit Committee Characteristics and Firm Performance: Evidence from the Insurance Sector in Bahrain,” Rev. Gestão Inovação e Tecnol., vol. 11, no. 2, pp. 1666–1680, Jun. 2021, doi: 10.47059/revistageintec.v11i2.1789.
J. Lee and J. Park, “The Impact of Audit Committee Financial Expertise on Management Discussion and Analysis (MD&A) Tone,” Eur. Account. Rev., vol. 28, no. 1, pp. 129–150, 2019, doi: 10.1080/09638180.2018.1447387.
I. D. Bimo, E. E. Silalahi, and N. L. G. L. Kusumadewi, “Corporate governance and investment efficiency in Indonesia: the moderating role of industry competition,” J. Financ. Report. Account., vol. 20, no. 2, pp. 371–384, 2022, doi: 10.1108/JFRA-12-2020-0351.
H. L. Huang, L. W. Liang, H. Y. Chang, and H. Y. Hsu, “The influence of earnings management and board characteristics on company efficiency,” Sustain., vol. 13, no. 21, 2021, doi: 10.3390/su132111617.
M. M. Aleqab and M. M. Ighnaim, “The impact of board characteristics on earnings management,” J. Gov. Regul., vol. 10, no. 3, pp. 8–17, 2021, doi: 10.22495/JGRV10I3ART1.
C. Ghafran and S. Yasmin, “Audit committee chair and financial reporting timeliness: A focus on financial, experiential and monitoring expertise,” Int. J. Audit., vol. 22, no. 1, pp. 13–24, Mar. 2018, doi: 10.1111/ijau.12101.
M. K. Olum, “Impacts of Gender Diversity in Board of Directors and Audit Committee on Earnings Quality,” J. Account. Knowl., vol. 10, no. 1, 2019, doi: 10.22103/jak.2019.11887.2655.
D. Bouaziz, B. Salhi, and A. Jarboui, “CEO characteristics and earnings management: empirical evidence from France,” J. Financ. Report. Account., vol. 18, no. 1, pp. 77–110, Jan. 2020, doi: 10.1108/JFRA-01-2019-
A. Farhan, S. N. Obaid, and H. Azlan, “Corporate governance effect on firms’ performance – evidence from the UAE,” J. Econ. Adm. Sci., vol. 33, no. 1, pp. 66–80, May 2017, doi: 10.1108/JEAS-01-2016-0002.
P. M. Dechow, R. G. Sloan, and A. P. Sweeney, “Dechow_et_al_1995.pdf,” The accounting Review, vol. 70, no. 20. pp. 193–225, 1995.
G. Cai, W. Li, and Z. Tang, “Religion and the Method of Earnings Management: Evidence from China,” J. Bus. Ethics, vol. 161, no. 1, pp. 71–90, Jan. 2020, doi: 10.1007/s10551-018-3971-6.
H. Y. Al Mukhaymar, “The Effect of Board of Directors’ Characteristics on Payout Policy: An Empirical Study on Saudi Banks,” Arab J. Adm., vol. 0, no. 0, pp. 0–0, 2022, doi: 10.21608/aja.2022.127202.1216.
A. Ali, “Audit committee characteristics and earning management of insurance companies in Ethiopia,” Cogent Bus. Manag., vol. 11, no. 1, Dec. 2024, doi: 10.1080/23311975.2023.2301136.
S. Chen, Y. Ye, K. Jebran, and M. A. Majeed, “Confucianism culture and corporate cash holdings,” Int. J. Emerg. Mark., vol. 15, no. 6, pp. 1127–1159, Mar. 2020, doi: 10.1108/IJOEM-08-2019-0590.
U. S. Bhutta, A. AlHares, Y. Shahab, and A. Tariq, “The jinx of real earnings management: evidence from inefficient investments and debt maturity structure in Pakistan,” J. Account. Emerg. Econ., vol. 12, no. 2, pp. 405–432, Mar. 2022, doi: 10.1108/JAEE-03-2021-0079.
S. Triki Damak, “Gender diverse board and earnings management: evidence from French listed companies,” Sustain. Accounting, Manag. Policy J., vol. 9, no. 3, pp. 289–312, Jul. 2018, doi: 10.1108/SAMPJ-08-2017-0088.
H. N. Dang, K. Hoang, V. T. Vu, and L. Van Nguyen, “Do socially responsible firms always disclose highquality earnings? Evidence from an emerging socialist economy,” Asian Rev. Account., vol. 29, no. 3, pp. 291–306, Aug. 2021, doi: 10.1108/ARA-11-2020-0174.
L. Leszczensky and T. Wolbring, “How to Deal With Reverse Causality Using Panel Data? Recommendations for Researchers Based on a Simulation Study,” Sociol. Methods Res., vol. 51, no. 2, pp. 837–865, May 2022, doi: 10.1177/0049124119882473.
M. Arellano and S. Bond, “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,” Rev. Econ. Stud., vol. 58, no. 2, p. 277, Apr. 1991, doi: 10.2307/2297968.
V. Q. Trinh, M. Elnahass, A. Salama, and M. Izzeldin, “Board busyness, performance and financial stability: does bank type matter?,” Eur. J. Financ., vol. 26, no. 7–8, pp. 774–801, May 2020, doi: 10.1080/1351847X.2019.1636842.
N. De Vlaminck and G. Sarens, “The relationship between audit committee characteristics and financial statement quality: evidence from Belgium,” J. Manag. Gov., vol. 19, no. 1, pp. 145–166, Feb. 2015, doi: 10.1007/s10997-013-9282-5.
M. Habbash, C. Sindezingue, and A. Salama, “The effect of audit committee characteristics on earnings management: Evidence from the United Kingdom,” Int. J. Discl. Gov., vol. 10, no. 1, pp. 13–38, Feb. 2013, doi: 10.1057/jdg.2012.2.
S. P. Kothari, A. J. Leone, and C. E. Wasley, “Performance matched discretionary accrual measures,” J. Account. Econ., vol. 39, no. 1, pp. 163–197, 2005, doi: 10.1016/j.jacceco.2004.11.002.
A. Ali, T.-Y. Chen, and S. Radhakrishnan, “Corporate disclosures by family firms,” J. Account. Econ., vol. 44, no. 1–2, pp. 238–286, Sep. 2007, doi: 10.1016/j.jacceco.2007.01.006.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Ali Dakhil Sakhil, Norkhairul Hafiz Bajuri, Hussein Falah Hasan, Shireen Tawfeeq Ali
This work is licensed under a Creative Commons Attribution 4.0 International License.
