The Impact of Financial Leverage on Real Activities Earnings Management in the Presence of Financial Constraints for Egyptian Companies: An Empirical Study

The study aimed to measure the impact of financial leverage on real activities earnings management in the presence of financial constraints for Egyptian companies.
To achieve the research objective, the researcher relied on reviewing previous accounting studies related to the study variables, in addition to conducting an applied study on a sample of non-financial Egyptian companies listed on the Egyptian Stock Exchange, consisting of (131 companies - 1194 observations) during the period from 2010 to 2021, using Panel Data analysis and applying both fixed effects and random effects models.
The study found that the impact of financial leverage on real earnings management practices differs between financially constrained and unconstrained companies. In financially constrained companies, an increase in financial leverage (whether total, long-term, or short-term) leads to a decrease in real earnings management practices. In financially unconstrained companies, the impact of financial leverage varies depending on its type, where an increase in total and short-term financial leverage leads to a rise in real earnings management practices. In contrast, an increase in long-term financial leverage leads to a decrease.
The results of this study contribute to understanding the relationship between financial leverage and real earnings management in the presence of financial constraints for Egyptian companies. The findings provide new insights for investors and policymakers and open up new research areas to explore additional factors that influence this relationship.