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Do the Characteristics of Board of Directors Constrain Real Earnings Management in Emerging Markets? – Evidence from the Tunisian Context

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  • Inaam Zgarni
  • Khmoussi Halioui
  • Fatma Zehri

Abstract

This study examines the effects of the characteristics of board of directors (independence, size, frequency of meetings and CEO/Chair duality) on the reduction of the extent of Real Earnings Management (REM) before and after the adoption of the Financial Security Law No. 2005-96 in Tunisia by analyzing the financial data of 29 non-financial companies listed on the Tunis Stock Exchange during the period 2001-2009. The paper tests whether the characteristics of board of directors are significant determinants of REM. It estimates REM proxy using the model of Roychowdhury (2006). The results suggest that a board comprising majority of independent directors reduces the extent of REM. Furthermore, it is observed that there is a significant association between size of the board of directors and discretionary expenses and overproduction, but not sales manipulation. Further, board duality is found to be positively associated with the discretionary expenses in the post-law period, while a negative association is observed between the number of board meetings and sales manipulation and overproduction. Finally, the findings suggest that adoption of the Financial Security Law, 2005 has a negative and significant effect on REM. In addition, the discretionary accruals are positively associated with REM in both pre- and post-law periods.

Suggested Citation

  • Inaam Zgarni & Khmoussi Halioui & Fatma Zehri, 2014. "Do the Characteristics of Board of Directors Constrain Real Earnings Management in Emerging Markets? – Evidence from the Tunisian Context," The IUP Journal of Accounting Research and Audit Practices, IUP Publications, vol. 0(1), pages 46-61, January.
    • Handle: RePEc:icf:icfjar:v:13:y:2014:i:1:p:46-61
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    Cited by:

    1. McWay, Ryan & Saona, Paolo & Muro, Laura & Jara, Mauricio, 2019. "Contrasting Incentives for Earnings Management: Board Activity and Board Remuneration in Spanish Firms," OSF Preprints xgn3y, Center for Open Science.
    2. Rajashri Chatterjee & Debdas Rakshit, 2023. "Association Between Earnings Management and Corporate Governance Mechanisms: A Study Based on Select Firms in India," Global Business Review, International Management Institute, vol. 24(1), pages 152-170, February.
    3. Neeraj K. Sehrawat & Amit Kumar & Nandita Lohia & Satvik Bansal & Tanya Agarwal, 2019. "Impact of Corporate Governance on Earnings Management: Large Sample Evidence from India," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(12), pages 1335-1345, December.
    4. Dhouha Bouaziz, 2024. "Does the CEO's Entrenchment Affect the Financial Communication Quality? Empirical Evidence from France," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 23(1), pages 107-133, January.
    5. Rokiah Ishak* & Noor Afza Amran & Kamarul Bahrain Abdul Manaf, 2018. "Firm Characteristics and Financial Reporting Quality: The Moderating Role of Malaysian Corporate Governance Index," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 924-932:6.

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