The impact of corporate governance on the relationship Between the behavior of the Executive Director and the management of profits: an applied study on companies listed on the Saudi stock market

Document Type : Original Article

Authors

1 Accounting Department Arab East Colleges for Graduate Studies Saudi Arabia

2 Accounting department Faculty of Commerce Alexandria University Alexandria Egypt

3 Department of Accounting Faculty of Economics and Administrative Sciences Imam Muhammad bin Saud Islamic University Saudi Arabia

Abstract

This study examines the effect of CEO’s conduct (CEO narcissistic personality and CEO shares’ ownership) to engage in earning management on a sample of listed companies in the Saudi Stock Exchange (Tadawul) during the period from 2014-2017. The study also examines the role of corporate governance mechanisms (Audit Committee, Number of BOD Directors, Percentage of Non-executive directorsand CEO Double-standards) in restricting administrative self-interested choices of thee CEOs leading to increasing the information content of financial statements and reducing non-consistency of information between the management and users of financial statements as stakeholders in the company.
 
To achieve the objectives of the study, the researchers relied on Miller’s way to measure practices of earning management. The rese-archers also used a number of multiple regression models to investigate the relationship between the CEO conduct and earning management as well as the role of corporate governance in limiting such relationship.
 
The results suggested that there is a statistically significant positive relationship between the CEO narcissistic personality and earning management. Also, the results revealed that there is no significant re-lationship between CEO ownership of shares and earning mana-gem-ent. The findings also suggested that corporate governance mec-han-isms reduced influence of CEOs having narcissistic personality on ea-rning management. Since governance variations are applied as amen-
 
 
ded variations in regression model, the relationship between the CEO narcissistic personality and earning management changed from a significant positive relationship to non-significant. This implies that corporate governance mechanisms can restrict administrative self-interested choices of CEOS in relation to earning management.The results of the study highlighted the significance of corporate governance due to its vital role in detecting financial and administrative corruption. The results also show the importance of monitoring the application of corporate governance mechanisms by listed companies. The researchers recommended both auditors and researchers to perform necessary exercising and professional care to detect such immoral practices of executives in general.

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