The relationship between earnings management and investment efficiency with auditor industry specialization and board independence as two moderating variables An empirical study on companies listed in the Egyptian stock exchange

The research aims to analyze and test the relationship between earnings management and investment efficiency, in addition to the moderating effects of either auditor industry specialization or board independence, as two moderating variables, on this relationship. An empirical study was used to test research hypotheses on a sample of 55 listed companies in the Egyptian stock market, during the period from 2015 to 2018. The total number of observations was 220 observations (company – year). Research hypotheses have been tested using multiple regression models.
   The research has found that, there is a significant negative (positive) relationship between earnings management and investment efficiency (inefficiency). Auditor industry specialization moderates the relationship between earnings management and investment efficiency, and the same has been found regarding the moderation effect of board independence on this relationship between earnings management and investment efficiency. There are significant positive relationships between investment efficiency and either company age or leverage, while there are significant negative relationships between investment efficiency and either assets tangibility, return on assets, or company size.
   The robustness or sensitivity test, using a new model to assess earnings management, has supported the significant negative (positive) relationship between earnings management and investment efficiency(inefficiency), and the moderation effect of either auditor specialization or board independence on the same relationship between earnings management and investment efficiency. Finally, the additional analysis has tested again research hypotheses separately on each of the two subsamples (over investment subsample & underinvestment subsample) of observations. These additional tests have supported the significant negative (positive) relationship between earnings management and investment efficiency (inefficiency) in the two subsamples, and supported only the moderating effect of auditor specialization on the relationship between earnings management and investment efficiency in case the underinvestment subsample, while the same additional tests have supported the moderating effect of board independence on the relationship between earnings management and investment efficiency in the two subsamples.