Authors: Wael Mostafa
Addresses: School of Business, American University of Ras Al Khaimah, UAE
Abstract: This research contributes to the literature addressing the phenomenon of earnings management in global markets. The research setting is Egypt, and due to data limitations in this setting, this research examines earnings management based on firm operating performance. In particular, the question of whether ineffectively performing firms engage more in earnings management strategies compared to their effectively performing counterparts is investigated. Sign change ratio analysis, correlation analysis, and regression analysis were employed to determine the extent to which the strength of the relationship between earnings and cash flows differs between ineffectively and effectively performing firms. The results show that considered against effectively performing firms, ineffectively performing firms in the emerging market of Egypt are associated with a greater level of earnings management. Overall, this finding suggests that for listed Egyptian firms, company operating performance is a significant incentive of earnings management. Furthermore, this finding encourages the argument in favour of Egyptian corporate governance reform.
Keywords: earnings management; operating performance; earnings; cash flows from operations; Egypt.
Afro-Asian Journal of Finance and Accounting, 2020 Vol.10 No.4, pp.584 - 605
Received: 02 May 2019
Accepted: 03 Nov 2019
Published online: 12 May 2020 *