The effect of corporate governance mechanisms on earnings management practices in Saudi listed companies

Almalki, Bayan Abdullah (2023) The effect of corporate governance mechanisms on earnings management practices in Saudi listed companies. PhD thesis, University of Glasgow.

Abstract

The main objective of this thesis is to examine the impact of corporate governance mechanisms on earnings management practices in Saudi Arabia. To achieve this aim, the study first analyses the relationship between the level of compliance with the Saudi Corporate Governance Code (SCGC) and earnings management practices by employing a self-constructed corporate governance index (i.e., the compliance-index model), derived mainly from the 2017 Saudi Corporate Governance Code. Second, the study examines the association between a number of individual corporate governance mechanisms (i.e., the equilibrium-variable model) and earnings management practices in Saudi listed firms. Third, it examines the influence of family ownership on the association between corporate governance mechanisms (measured by a comprehensive governance index) and earnings management practices in Saudi listed firms. Through use of a sample of 112 Saudi listed firms between 2006 and 2017 (i.e., 994 firm-year observations) together with insights from agency theory, the compliance index model produces results showing a statistically significant and negative association between the Saudi Corporate Governance Index (SCGI) and the level of earnings management practices. However, this result does not hold for firms with high family ownership, since the results reveal that the effectiveness of corporate governance (measured by the SCGI) in constraining earnings management is reduced in Saudi firms with high family ownership. In a series of sensitivity analyses, this evidence is robust to (i) alternative earnings management models, (ii) endogeneity, and (iii) alternative proxy for family control.

Regarding the equilibrium-variable model, the results indicate that Saudi firms are likely to have lower levels of earnings management practices if they have a high percentage of strictly independent directors on the boards, a larger board size, and audit committees that meet more often. Additionally, the results show that Saudi firms with higher government ownership, institutional ownership and family ownership have lower levels of earnings management practices. In contrast, the current study did not find any evidence that the strict independence of audit committee index, percentage of directors with multiple directorships, percentage of family directors on the board and percentage of blockholders ownership have any significant relationship with the extent of earnings management practices in the Saudi firms. Also, the study found that non-strict board/audit independence is not effective in reducing earnings management practices in Saudi firms. These results are moderately robust to (i) alternative earnings management models, (ii) endogeneity, and (iii) alternative proxies for strict board independence. Finally, the findings of this study indicate the effectiveness of the governance provisions provided in the 2017 Saudi Corporate Governance Code in improving governance practices in the Saudi context.

• Item Type: Thesis (PhD)
• Qualification Level: Doctoral
• Subjects: H Social Sciences > H Social Sciences (General); H Social Sciences > HF Commerce > HF5601 Accounting
• Colleges/Schools: College of Social Sciences > Adam Smith Business School
• Supervisor's Name: Guidi, Dr. Marco and Opong, Professor Kwaku
• Date of Award: 2023
• Depositing User: Theses Team
• Unique ID: glathesis:2023-83676
• Copyright: Copyright of this thesis is held by the author.
• Date Deposited: 26 Jun 2023 15:40
• Last Modified: 13 Jul 2023 07:58
• Thesis DOI: 10.5525/gla.thesis.83676
• URI: https://theses.gla.ac.uk/id/eprint/83676