Audit committees' independence and earnings management in developing countries: evidence from MENA countries

PurposeThis study aims to examine the under-researched relationship between audit committee independence and earnings management in a number of emerging Middle Eastern and North African (MENA) countries.Design/methodology/approachOrdinary least squares regression was used to study the association between audit committee independence and earnings management in a sample of 3,206 firm-year observations during the years 2007-2017. Data were obtained from the Thomson Reuters Compustat database.FindingsThe main results show that audit committee independence has a negative association with accrual-based earnings management. The results also document no evidence to suggest that audit committee independence has any significant relationship with real earnings management.Research limitations/implicationsThis study provides new evidence of the impact of the independence of the audit committee in decreasing earnings management in MENA region, which was not addressed in previous studies.Practical implicationsThis study has a significant practical implication for regulators and corporate governance policymakers in MENA countries and other countries with a similar institutional setting, whose responsibility is to prescribe proper corporate governance structures to guarantee that shareholders are protected.Originality/valueThe author contributes to the still limited research on the impact of audit committee independence on earnings management since the extant literature focuses on the Anglo-Saxon countries. The author tries to provide new insights into this relationship within the developing context, the case of MENA countries that have a different environment compared to advanced markets. To the best of the author's knowledge, this study is among the pioneering efforts to investigate the influence of audit committee independence on earnings management in MENA countries.