Does ownership structure reduce earnings manipulation practice of Egyptian listed firms? Evidence from a dynamic panel threshold model

Abstract

This paper analyzes the nonlinear relationship between corporate ownership structure and income manipulation through accrual-based earnings management in the Egyptian context. To do so, we develop a sample of 78 listed non-financial firms, covering the period 2008–2017. Using the dynamic panel threshold analysis approach (Seo and Shin in J Econom 195: 169–186, 2016), we found a nonlinear relationship between ownership structure and earnings manipulations. This proves the presence of an optimal ownership structure threshold below which the ownership structure generates an entrenchment effect on earnings management. However, above this threshold, the ownership structure has an alignment effect. Certainly, these results confirm the theoretical predictions in relation to managerial ownership, governmental ownership, and earnings management (agency, political and development theories, respectively). These results yield important policy implications. It is recommended to set an optimal threshold of ownership structure to control the firm`s managers. This is likely to avoid earnings management.

The Operational Risk Disclosure Threshold Effect in the Earnings Management–Sustainability Firm Performance Nexus in Saudi Arabia: A Dynamic Panel Threshold Regression Model

“…In summary, risk disclosure is an important contributor to the improvement in a firm's overall performance. It builds stakeholder trust, reduces conflicts of interest, and limits earnings management practices [24,43]. This highlights the strategic importance of disclosing risk in the financial and managerial context of modern firms [19,44].…”

“…More recently, Ref. [24] concluded that the association between ownership and earnings manipulation is nonlinear. Their outcomes reveal that the ownership structure of Egyptian firms has alignment effects on earnings management.…”

“…Earnings management practices can have a variety of positive (or negative) effects on firm performance [2,[17][18][19][20], and the extent of operational risk disclosure is a critical factor in this relationship. Previous studies have shown that higher-quality operational risk disclosure can improve firm performance and reduce the cost of equity [8,21,22], while other studies have found that risk disclosure can reduce the cost of capital and management's tendency to misreport earnings [23,24]. Other recent research has examined the moderator effect of corporate governance (or other factors) on the relationship between earnings management and firm performance [25,26].…”