Corporate governance, earnings management and the moderating role of political connections: evidence from the Gulf Co-operation Council countries

Abiot Mindaye Tessema, Muhammad Kaleem Zahir-Ul-Hassan, Ammad Ahmed
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Abstract

Purpose

The purpose of this study is to examine the influence of corporate governance (CG) mechanisms on earnings management (EM) within the Gulf Co-operation Council (GCC) countries. In addition, the impact of firm’s political connections (PCs) on EM is investigated, as well as whether it moderates the relationship between CG and EM.

Design/methodology/approach

Fixed-effects model is used on a sample of non-financial firms across the GCC countries to test the hypotheses. Moreover, a two-stage least squares method and a propensity score matching procedure are used to mitigate potential reverse causality and sample selection bias.

Findings

This study reveals that CG mechanisms such as board size and board independence are negatively associated with EM, while CEO duality is positively association with EM. In addition, this study shows that institutional ownership and blockholders do not influence EM. Furthermore, PCs are shown to play a moderating role in the relationship between CG and EM. The results of this study are robust to endogeneity testing and to alternative measures of CG.

Research limitations/implications

Because of a lack of data, the authors do not consider additional CG attributes such as tenure, education and age of board members. Future research could explore the impact of these attributes when data becomes available.

Practical implications

This study provides valuable insights for government officials, policymakers, standard-setters, regulators and corporations by presenting new evidence on the relationship among CG, PCs and EM. Moreover, this study underscores that, in the absence of a strong institutional infrastructure and investor protection, relying solely on strong CG and Islamic values and GCC culture may have a limited impact on effective monitoring of opportunistic managerial behaviors.

Originality/value

This study contributes to existing literature with a specific focus on the unique political, legal, institutional, social and cultural setting of the GCC region. Moreover, this study provides new insights that PCs serve as a governance mechanism in mitigating EM because relatively little attention has been given to the impact of PCs in improving accounting outcomes, especially in the context of the GCC region where Islamic ethical norms often shape business practices.

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公司治理、收益管理和政治关系的调节作用:来自海湾合作委员会国家的证据
目的本研究旨在探讨海湾合作委员会(GCC)国家的公司治理(CG)机制对收益管理(EM)的影响。此外,本研究还探讨了公司的政治关系(PCs)对收益管理的影响,以及政治关系是否会调节公司治理与收益管理之间的关系。设计/方法/途径对海湾合作委员会国家的非金融公司样本采用固定效应模型来检验假设。此外,还采用了两阶段最小二乘法和倾向得分匹配程序,以减少潜在的反向因果关系和样本选择偏差。研究结果本研究揭示,企业管治机制(如董事会规模和董事会独立性)与新兴市场呈负相关,而首席执行官双重性与新兴市场呈正相关。此外,本研究还表明,机构所有权和大股东并不影响新兴市场。此外,个人股东在企业管治与企业管理之间的关系中起到了调节作用。研究局限/意义由于缺乏数据,作者没有考虑董事会成员的任期、教育程度和年龄等其他公司治理属性。本研究通过提供有关 CG、PC 和 EM 之间关系的新证据,为政府官员、政策制定者、标准制定者、监管者和企业提供了有价值的见解。此外,本研究还强调,在缺乏强大的制度基础设施和投资者保护的情况下,仅仅依靠强大的企业管治、伊斯兰价值观和海湾合作委员会文化,对有效监督机会主义管理行为的影响可能有限。 原创性/价值本研究特别关注海湾合作委员会地区独特的政治、法律、制度、社会和文化环境,为现有文献做出了贡献。此外,本研究还提供了新的见解,即个人账户管理可作为一种治理机制来缓解市场动荡,因为人们对个人账户管理在改善会计结果方面的影响关注相对较少,尤其是在海湾合作委员会地区,伊斯兰道德规范往往左右着商业行为。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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来源期刊
CiteScore
4.40
自引率
11.10%
发文量
67
期刊介绍: The International Journal of Ethics and Systems (formerly named Humanomics, the International Journal of Systems and Ethics) is a multidisciplinary journal publishing peer review research on issues of ethics and morality affecting socio-scientific systems in epistemological perspectives. The journal covers diverse areas of a socio-scientific nature. The focus is on disseminating the theory and practice of morality and ethics as a system-oriented study defined by inter-causality between critical variables of given problems.
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