The purpose of this paper is to investigate the current level of voluntary corporate disclosure in the Egyptian Stock Exchange. In addition, it explores the factors influencing…
Abstract
Purpose
The purpose of this paper is to investigate the current level of voluntary corporate disclosure in the Egyptian Stock Exchange. In addition, it explores the factors influencing the extensiveness of voluntary disclosure and examines the potential consequences of such disclosure in regards to the phenomenon of earnings management.
Design/methodology/approach
A relevant disclosure index to the Egyptian context was adopted to assess the level of voluntary disclosure in the 2010 annual reports of the most actively traded companies listed on the Egyptian Stock Exchange. The relationship between the extent of voluntary disclosure and each specific-related factor was examined using unranked and ranked OLS regression models. Meanwhile, a system of simultaneous equations was performed using a two-stage least squares regression model in order to investigate whether companies with higher levels of voluntary disclosure exhibit lower levels of earnings management practices.
Findings
The results indicate that the level of voluntary disclosure is positively responsive to specific corporate attributes, namely, the type of auditing firm and the two industries of Healthcare and Pharmaceuticals, and Chemicals. However, no significant indications were found that firm size, leverage, profitability and liquidity are important determinants of corporate disclosure. Also, the results show no evidence to support the prior anticipation that a higher level of voluntary disclosure reduces the ability of managers to make use of earnings management. On the contrary, it was found that leverage and the tendency of firms to avoid reporting declines in earnings are the main drivers of the phenomenon of earnings management in Egypt.
Practical implications
This paper has important implications for both domestic and overseas investors in Egypt as well as the regulatory authorities in the developing economies.
Originality/value
The main contribution of this paper is its focus on the extent of voluntary disclosure in a developing country such as Egypt, which has a high potential for economic growth in the near future. Besides, this paper is the first to examine the relationship between the level of voluntary disclosure and the phenomenon of earnings management in the Egyptian context.
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Mostafa Kamal Hassan, Bassam Abu-Abbas and Hany Kamel
The authors investigate the impact of disclosure tones and financial risk on the readability of annual reports in the banking sector. The authors also examine the moderating…
Abstract
Purpose
The authors investigate the impact of disclosure tones and financial risk on the readability of annual reports in the banking sector. The authors also examine the moderating effect of banks' financial risk on the tone–readability relationship.
Design/methodology/approach
This study relies on the agency theory and the social psychology theory to formulate its testable hypotheses and explain the empirical findings. It uses a sample of 390 bank-year observations from banks listed in the Gulf Cooperation Council (GCC) Stock Exchanges during the period 2014–2019. It also employs random effect regressions to analyze the data and to examine the reverse causality/endogeneity in order to obtain robust findings.
Findings
This study’s results demonstrate that easy (difficult) to read annual reports is significantly associated with positive (negative) tone. Bank managers characterized as “too positive/optimistic” and banks with higher financial risks publish less readable annual reports. The results also show that the interaction between negative tone and a bank's financial risk is inversely associated with reading difficulty, indicating that managers prepare easy text to clarify causes of their banks’ high risks, yet they communicate this easy text with a negative tone that reflects their feelings/emotions towards the financial risks of their banks.
Practical implications
This study’s findings call for the use of a plain English text that bears a neutral tone and urge financial analysts to go beyond the financial aspects of annual reports. They also stimulate policymakers to draft policies, which ensure the presence of audit committee members who possess a broad expertise to uncover the linguistic issues embedded in the annual reports.
Originality/value
To the best of the authors' knowledge, this is the first study dedicated to exploring the tone–readability association in the GCC's banking sector.
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Hazem Ramadan Ismael and Hany Kamel
This study aims to examine the association between internal audit quality and the involvement of UK companies in earnings management practices.
Abstract
Purpose
This study aims to examine the association between internal audit quality and the involvement of UK companies in earnings management practices.
Design/methodology/approach
To measure the internal audit quality, this study uses 115 responses for a postal questionnaire that was addressed to the heads of internal audit departments in a sample of non-financial listed companies in the UK context. The other financial and governance data for the respondent companies were collected from the Datastream and the companies’ annual reports. The present study uses the signed abnormal accruals as a proxy for earnings management and uses both logistic and ordinary least squares regression models to test the research hypothesis.
Findings
This study finds a negative relationship between the internal audit quality and the abnormal accruals, implying the prominent role of internal audit in reducing the upwards earnings management. The study also finds a significant impact of the internal audit competence on reducing the engagement of UK companies in income-increasing earnings management compared to the internal audit independence. This remarkable result suggests the companies need to focus more on enhancing the internal audit competence to reduce the opportunistic management’s behaviour.
Practical implications
This study has important implications for the internal audit’s practice, regulation and research.
Originality/value
This is the first study that investigates the relationship between internal audit quality and earnings management in the UK context. Furthermore, it uses a comprehensive measure for the internal audit function (IAF) quality covering different aspects of IAF quality based on the global Institute of Internal Auditor standards and prior internal audit literature.
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The aim of this paper is to investigate the phenomenon of earnings management in Egypt, with particular reference to the pricing of IPOs. In addition, it aims to discuss its…
Abstract
Purpose
The aim of this paper is to investigate the phenomenon of earnings management in Egypt, with particular reference to the pricing of IPOs. In addition, it aims to discuss its respondents' perceptions of the factors that are likely to weaken the effectiveness of internal corporate governance mechanisms in preventing the engagement in earnings management practices.
Design/methodology/approach
To achieve the objectives of this paper, a multi‐method approach was adopted. This approach includes secondary data analysis and the collection of primary data from a number of semi‐structured interviews.
Findings
The results indicate that Egyptian IPO managers have no incentive to affect the offering proceeds of their firms through exercising their discretion over the accounting accruals before going public. On the contrary, the results suggest that the amount of equity retained by issuers and the size of IPOs have a very significant impact on determining offering prices in the Egyptian stock market. The results also suggest that state‐owned enterprises are less eager to maximise their offering proceeds than privately owned companies.
Practical implications
The findings of this paper will be of interest to domestic and overseas investors in the Egyptian IPO market. This paper also provides many recommendations to the regulatory authorities in Egypt regarding ways to strengthen and reinforce the internal governance structure of companies.
Originality/value
There has so far been relatively little or no research into earnings management practices in Egypt. The multi‐cultural roots of Egyptian society make it different from other societies and hence distinguish it as a setting for our study.
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The purpose of this paper is to empirically investigate the phenomenon of earnings management in the Egyptian initial public offerings (IPO) market where most of the IPOs were the…
Abstract
Purpose
The purpose of this paper is to empirically investigate the phenomenon of earnings management in the Egyptian initial public offerings (IPO) market where most of the IPOs were the privatisations of state‐owned enterprises (SOEs).
Design/methodology/approach
Using a sample of 59 Egyptian IPOs, the extent of earnings management was computed using a modified cross‐sectional version of Jones’ model.
Findings
The initial results do not provide support for the hypothesis that Egyptian IPO firms tend to overstate their earnings before the IPO date. However, when the sample firms were classified under two groups based on the pre‐IPO discretionary accruals, the results illustrate that most privately‐owned companies were found among those which contemplate to aggressively manage earnings upwards in order to maximise the IPO proceeds, whereas privatised public enterprises were found with no systematic pattern of earnings manipulation. The results also demonstrate that pre‐offering discretionary accruals do not explain the post‐offering underperformance in earnings but predict a portion of the subsequent poor share returns performance.
Practical implications
The findings could be of assistance to all those involved in IPOs, such as the regulatory authorities and the primary and secondary market investors.
Originality/value
With a few exceptions, most of the literature on earnings management has been based on the US data. Therefore, it is hoped that undertaking a research in a country such as Egypt, where the shareholding structures of most Egyptian IPO companies were concentrated in the hands of the state before going public, may reveal a different perception of earnings management and help determine whether this setting would lead to a higher or lower propensity for earnings management.
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– The purpose of this paper is to discuss the respondents’ perceptions of the role of audit committees in Egypt and their likely impact on the quality of financial reporting.
Abstract
Purpose
The purpose of this paper is to discuss the respondents’ perceptions of the role of audit committees in Egypt and their likely impact on the quality of financial reporting.
Design/methodology/approach
In all, 217 usable questionnaires were collected from three groups of respondents, namely, accounting academics, external auditors and financial managers or senior accountants. For test-retest reliability purposes, seven respondents completed the questionnaire twice.
Findings
The results indicate that the most important function for an effective audit committee to perform is to “review significant changes in accounting policies and practices”. The results also demonstrate that respondents have consistently ranked the different aspects of internal control evaluation as the second most important area to oversee. Moreover, the overwhelming majority of respondents have rated the independence of audit committee members and their experience in accounting or other related subjects as the most important attributes that should be considered when selecting the members of an audit committee. Finally, the vast majority of respondents have perceived the existence of a well-functioning and well-structured audit committee as an effective mechanism in constraining the incidence of financial statement fraud in Egypt.
Practical implications
The findings could be of assistance to businesses and professional associations while they develop their own framework in which audit committees play an important role against corporate abuse and misleading financial statements.
Originality/value
The development of audit committees in Egypt is in its early stage compared with the USA and other advanced economies where audit committees have more than 70 years of history. Therefore, assessing the current perceptions of the role of audit committees in a country such as Egypt could be of general interest to several other developing countries.
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The purpose of this paper is to assess respondents' perceptions of the quality of reported earnings in Egypt. To this end, three main issues are investigated: first, the potential…
Abstract
Purpose
The purpose of this paper is to assess respondents' perceptions of the quality of reported earnings in Egypt. To this end, three main issues are investigated: first, the potential incentives for engagement in earnings manipulation; second, the techniques most frequently used in manipulating earnings; and finally, the actions required to improve the quality of accounting information, including the reported earnings.
Design/methodology/approach
A total of 16 semi‐structured interviews are conducted in order to uncover any undisclosed issues and to supplement the results provided by a questionnaire survey distributed among three groups of respondents, namely, accounting academics, external auditors, and financial managers.
Findings
The results indicate that the main incentives for manipulating earnings in Egypt are to enhance the chances of obtaining a bank loan; to sustain last year's profit performance; to report profits and to avoid reporting losses; and to achieve high‐share valuation. The results also demonstrate that making inadequate provisions; capitalising rather than expensing expenditures; and overestimating the inventory value are the most frequently used techniques in earnings manipulation.
Practical implications
The results could be of assistance to Egyptian external auditors and regulators in their attempt to limit the incidence of earnings manipulation.
Originality/value
With a few exceptions, most of the literature on earnings management has been based on the US data. Therefore, research undertaken in a country such as Egypt, where the environment in many respects is different, may reveal a different perception of the quality of reported earnings and help determine how preparers in Egypt can further improve the quality of reported earnings.
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M.M. Kamel, H.M. Helmy, Alia A. Shakour and S.S. Rashed
Wool yarns are dyed with natural colouring matter that is extracted from cochineal, turmeric and madder, and mordanted with different mordants by using the exhaustion method. Many…
Abstract
Wool yarns are dyed with natural colouring matter that is extracted from cochineal, turmeric and madder, and mordanted with different mordants by using the exhaustion method. Many measurements of mordanted dyed wool samples have been carried out after exposure to air and light for different periods of time in the time frame of one year in an urban area (Helwan city). The variables that are measured include changes in colour and physical properties (tensile strength, tenacity and elongation) of mordanted dyed wool samples. Also, air pollution in Helwan city is determined by studying suspended and deposited particulate matter and sulpher dioxide concentrations.