Corporate governance and earnings management nexus: Evidence from the UK and Egypt using neural networks

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  • Hussein Abdou
    The University of Central Lancashire
  • Nouran Ellelly
    Portsaid University, Egypt
  • Ahmed Elamer
    Brunel University
  • Khaled Hussainey
    University of Portsmouth
  • Hassan Yazdifar
    Bournemouth University
Using conventional regressions and generalized regression neural networks (GRNNs), we examine the relationship between corporate governance (CG) and earnings management (EM). We also examine whether governance quality moderates the association between EM and CG for a sample of British and Egyptian companies. Our findings show that: (a) UK firms are likely to have lower levels of EM if they: have smaller boards, are dominated by independent outside directors, and have a low percentage of female directors; (b) Egyptian firms are likely to have lower levels of EM if they: have larger boards, are dominated by independent outside directors, and have a low percentage of female directors; (c) The governance quality (control of corruption) has a significant hidden effect on EM. Since our results provide empirical evidence that the board of directors plays a vital role in mitigating EM, these findings might lead to an improvement in the credibility of financial statements for investors in both the UK and Egypt. As policy implications, our findings inform regulators and policy-makers that corruption has a very strong hidden effect on EM and that they can deter EM by controlling the corruption level in their countries.
Iaith wreiddiolSaesneg
Tudalennau (o-i)6281-6311
CyfnodolynInternational Journal of Finance and Economics
Cyfrol26
Rhif y cyfnodolyn4
Dyddiad ar-lein cynnar29 Awst 2020
Dynodwyr Gwrthrych Digidol (DOIs)
StatwsCyhoeddwyd - 1 Hyd 2021
Cyhoeddwyd yn allanolIe
Gweld graff cysylltiadau