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Corporate Governance and Earnings Management Nexus: Evidence from the UK and Egypt Using Neural Networks.

Abdou, H., Ellelly, N., Elamer, A., Hussainey, K. and Yazdifar, H., 2020. Corporate Governance and Earnings Management Nexus: Evidence from the UK and Egypt Using Neural Networks. International Journal of Finance and Economics. (In Press)

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Official URL: https://onlinelibrary.wiley.com/journal/10991158

DOI: 10.1002/ijfe.2120

Abstract

Using conventional regressions and Generalized Regression Neural Networks (GRNN), 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.

Item Type:Article
ISSN:1076-9307
Uncontrolled Keywords:earnings management; corporate governance; governance quality; neural networks; corruption
Group:Faculty of Management
ID Code:34172
Deposited By: Unnamed user with email symplectic@symplectic
Deposited On:22 Jun 2020 10:50
Last Modified:09 Sep 2020 16:09

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