Earnings management, agency costs and corporate governance : evidence from Egypt

The main purpose of this study is to provide further insights into the potential influence of a number of internal and external governance mechanisms in constraining earnings management and determining the agency costs level. In addition, this study attempts to enhance the understanding of a number of issues relating to ownership structure and corporate governance in an emerging country setting. The international corporate collapse and accounting scandals surrounding some prominent large companies (e.g. Enron, Xerox, World.com, HealthSouth, Tyco, Waste management, RiteAid and Subeam) raised concern about the effectiveness of different monitoring devices that protect investors‘ interests. The majority of failures have resulted, in part, from accounting manipulation and dereliction of efficient corporate governance mechanisms that control opportunistic behaviour of management. This study argues that agency conflicts within a firm are considered to be among the influential sources of earnings management activities. In emerging countries with highly concentrated ownership, the prevalence of agency conflicts is more likely to lie mainly between controlling and minority shareholders rather than between managers and outside shareholders. Such conflicts, combined with the weak legal protection of minority shareholders and the flexibility inherent in accounting choices, are likely to induce managers to manipulate the reported earnings and adopt a range of activities that might be contrary to minority stockholders‘ interests. Using an original data set for a sample of Egyptian listed firms, the findings of the empirical analyses are in agreement with this argument. It is shown that corporate governance mechanisms do not work in isolation but they interact to effectively curb earnings management and alleviate different agency conflicts. It is also shown that firm-specific characteristics (e.g., growth opportunities) play a crucial role in understanding the conditional role of such mechanisms and other governance mechanisms, such as dividends and short debt, may help resolve corporate agency problems.

Name dc:type.qualificationname

PhD

Level dc:type.qualificationlevel

Doctoral

Grantor dc:publisher.institution

University of Hull

Year dc:date.issued

2010

Author dc:creator

• Khalil, Mohamed M.

Advisors dc:contributor.advisor

• Simon, Jon
• Ozkan, Aydin (Professor of finance)

• Business

Language dc:language

en

Identifier

oai:hull-repository.worktribe.com:4214880

OAI identifier oai:identifier

oai:hull-repository.worktribe.com:4214880