Entrenchment or Nepotism? The Trade-off between Accrual-Based and Real Earnings Management in Egyptian Family-Owned Firms

نوع المستند : المقالة الأصلية

المؤلفون

1 Accounting Department Faculty of Business, Alexandria University

2 Accounting Department, Faculty of Business, Alexandria University Accounting and Information Technology Department, Faculty of International Business and Humanities, Egypt- Japan University of Science and Technology (EJUST) New Borg Al-Arab, Alexandria, Egypt

المستخلص

This study investigates the influence of family-owned firms (FFs) in shaping managerial preferences for earnings management approaches, including accrual-based earnings management (AEM) and real earnings management (REM) within a sample of 109 non-financial firms listed on the Egyptian Stock Exchange. Analyzing a substantial dataset comprising 2,711 quarter-year observations from 2015 to 2022, the research employs the standard Jones (1991) accrual model to identify AEM while utilizing Roychowdhury (2006) approach to measure the utilization of REM through abnormal operating cash flows, discretionary expenses, and production levels. The findings of this study reveal that FFs significantly substitute AEM for REM to meet their pre-established family targets, with a significant inclination toward employing the REM approach. In contrast, the reliance on AEM appears statistically insignificant. These results illuminate the unique dynamics of earnings management within FFs, highlighting a potential oversight by auditors and regulators who may prioritize AEM over REM in their evaluations. Consequently, this research contributes important insights into the complexities of earnings management practices in the context of family dynamics, calling for a more nuanced understanding among stakeholders in the realm of corporate governance and financial monitoring.

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