IDEAS home Printed from https://ideas.repec.org/a/spr/futbus/v9y2023i1d10.1186_s43093-023-00218-z.html
   My bibliography  Save this article

Board characteristics and the likelihood of financial statements fraud: empirical evidence from an emerging market

Author

Listed:
  • Ibrahim El-Sayed Ebaid

    (Tanat University)

Abstract

This study examines the relationship between board characteristics and the likelihood of fraud in financial statements in the Saudi stock exchange as one of the emerging markets. Financial statements of 67 companies listed on the Saudi Stock Exchange have been collected over six years from 2014 to 2019. The modified Beneish M-score model (Beneish in Financ Anal J 55(5):24–36, 1999) has been used to measure fraudulent financial statements. Panel data techniques have been used to examine the relationship between financial statement fraud and four characteristics of the board: independence, size, meetings frequency, and gender diversity. The findings indicate that the likelihood of fraud in financial statements is negatively and significantly related to board independence and it is positively and significantly related to the board size. The results also indicate that the representation of women on the board and the frequency of meetings have no significant relationship with the likelihood of fraud in the financial statements. The results of this study provide insight into the importance of corporate governance mechanisms, including the board of directors, in preventing corporate managers from engaging in fraudulent financial reporting activities. In emerging markets such as the Saudi Stock Exchange, financial statements are the main and almost the only source of information about the company. Therefore, examining the factors that reduce financial statement fraud in these markets is important.

Suggested Citation

  • Ibrahim El-Sayed Ebaid, 2023. "Board characteristics and the likelihood of financial statements fraud: empirical evidence from an emerging market," Future Business Journal, Springer, vol. 9(1), pages 1-12, December.
    • Handle: RePEc:spr:futbus:v:9:y:2023:i:1:d:10.1186_s43093-023-00218-z
    DOI: 10.1186/s43093-023-00218-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1186/s43093-023-00218-z
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1186/s43093-023-00218-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. K.V. Peasnell & P.F. Pope & S. Young, 2005. "Board Monitoring and Earnings Management: Do Outside Directors Influence Abnormal Accruals?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7‐8), pages 1311-1346, September.
    2. Mahdi Salehi & Hasanain Ali Mohammed Al-Msafir & Saeid Homayoun & Grzegorz Zimon, 2022. "The effect of social and intellectual capital on fraud and money laundering in Iraq," Journal of Money Laundering Control, Emerald Group Publishing Limited, vol. 26(2), pages 227-252, February.
    3. Joung Yeon Kim & Dianne M. Roden & Steven R. Cox, 2013. "The Composition and Compensation of the Board of Directors as Predictors of Corporate Fraud," Accounting and Finance Research, Sciedu Press, vol. 2(3), pages 142-142, August.
    4. García Lara, Juan Manuel & García Osma, Beatriz & Mora, Araceli & Scapin, Mariano, 2017. "The monitoring role of female directors over accounting quality," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 651-668.
    5. Patricia M. Dechow & Richard G. Sloan & Amy P. Sweeney, 1996. "Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC," Contemporary Accounting Research, John Wiley & Sons, vol. 13(1), pages 1-36, March.
    6. Ming Jia & Zhe Zhang, 2013. "Managerial Ownership and Corporate Social Performance: Evidence from Privately Owned Chinese Firms' Response to the Sichuan Earthquake," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 20(5), pages 257-274, September.
    7. Anderson, Ronald C. & Mansi, Sattar A. & Reeb, David M., 2004. "Board characteristics, accounting report integrity, and the cost of debt," Journal of Accounting and Economics, Elsevier, vol. 37(3), pages 315-342, September.
    8. K.V. Peasnell & P.F. Pope & S. Young, 2005. "Board Monitoring and Earnings Management: Do Outside Directors Influence Abnormal Accruals?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1311-1346.
    9. Chen, Gongmeng & Firth, Michael & Gao, Daniel N. & Rui, Oliver M., 2006. "Ownership structure, corporate governance, and fraud: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 12(3), pages 424-448, June.
    10. Hanousek, Jan & Shamshur, Anastasiya & Tresl, Jiri, 2019. "Firm efficiency, foreign ownership and CEO gender in corrupt environments," Journal of Corporate Finance, Elsevier, vol. 59(C), pages 344-360.
    11. Pablo De Andres & Valentin Azofra & Felix Lopez, 2005. "Corporate Boards in OECD Countries: size, composition, functioning and effectiveness," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(2), pages 197-210, March.
    12. Faccio, Mara & Marchica, Maria-Teresa & Mura, Roberto, 2016. "CEO gender, corporate risk-taking, and the efficiency of capital allocation," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 193-209.
    13. Bill Francis & Iftekhar Hasan & Jong Chool Park & Qiang Wu, 2015. "Gender Differences in Financial Reporting Decision Making: Evidence from Accounting Conservatism," Contemporary Accounting Research, John Wiley & Sons, vol. 32(3), pages 1285-1318, September.
    14. Ahmed Ebrahim, 2007. "Earnings management and board activity: an additional evidence," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 6(1), pages 42-58, February.
    15. Simon Ho & Annie Li & Kinsun Tam & Feida Zhang, 2015. "CEO Gender, Ethical Leadership, and Accounting Conservatism," Journal of Business Ethics, Springer, vol. 127(2), pages 351-370, March.
    16. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    17. Messod D. Beneish, 1999. "The Detection of Earnings Manipulation," Financial Analysts Journal, Taylor & Francis Journals, vol. 55(5), pages 24-36, September.
    18. Kuang, Yu Flora & Lee, Gladys, 2017. "Corporate fraud and external social connectedness of independent directors," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 401-427.
    19. Ch. Spathis & M. Doumpos & C. Zopounidis, 2002. "Detecting falsified financial statements: a comparative study using multicriteria analysis and multivariate statistical techniques," European Accounting Review, Taylor & Francis Journals, vol. 11(3), pages 509-535.
    20. Klein, April, 2002. "Audit committee, board of director characteristics, and earnings management," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 375-400, August.
    21. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    22. Xie, Biao & Davidson, Wallace III & DaDalt, Peter J., 2003. "Earnings management and corporate governance: the role of the board and the audit committee," Journal of Corporate Finance, Elsevier, vol. 9(3), pages 295-316, June.
    23. Omid Mehri Namakavarani & Abbas Ali Daryaei & Davood Askarany & Saeed Askary, 2021. "Audit Committee Characteristics and Quality of Financial Information: The Role of the Internal Information Environment and Political Connections," JRFM, MDPI, vol. 14(6), pages 1-18, June.
    24. Byrd, John W. & Hickman, Kent A., 1992. "Do outside directors monitor managers? *1: Evidence from tender offer bids," Journal of Financial Economics, Elsevier, vol. 32(2), pages 195-221, October.
    25. Liao, Jing & Smith, David & Liu, Xutang, 2019. "Female CFOs and accounting fraud: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 449-463.
    26. Hatice Uzun & Samuel H. Szewczyk & Raj Varma, 2004. "Board Composition and Corporate Fraud," Financial Analysts Journal, Taylor & Francis Journals, vol. 60(3), pages 33-43, May.
    27. Adhikari, Binay K. & Agrawal, Anup & Malm, James, 2019. "Do women managers keep firms out of trouble? Evidence from corporate litigation and policies," Journal of Accounting and Economics, Elsevier, vol. 67(1), pages 202-225.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Uma Shankar Yadav & Indrajit Ghosal & Anupam Pareek & Kritika Khandelwal & Ajay Kumar yadav & Chandra Chakraborty, 2024. "Impact of entrepreneurial orientation and ESG on environmental performance: moderating impact of digital transformation and technological innovation as a mediating construct using Sobel test," Journal of Innovation and Entrepreneurship, Springer, vol. 13(1), pages 1-41, December.
    2. Abdu Mohammed Assfaw & Dhiraj Sharma, 2024. "Does corporate governance spur bank intellectual capital in an emerging economy? A system GMM analysis from Ethiopia," Future Business Journal, Springer, vol. 10(1), pages 1-28, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eugster, Nicolas & Kowalewski, Oskar & Śpiewanowski, Piotr, 2024. "Internal governance mechanisms and corporate misconduct," International Review of Financial Analysis, Elsevier, vol. 92(C).
    2. Mohamed Khalil & Aydin Ozkan, 2016. "Board Independence, Audit Quality and Earnings Management: Evidence from Egypt," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 15(1), pages 84-118, April.
    3. Pavlopoulos, Athanasios & Magnis, Chris & Iatridis, George Emmanuel, 2017. "Integrated reporting: Is it the last piece of the accounting disclosure puzzle?," Journal of Multinational Financial Management, Elsevier, vol. 41(C), pages 23-46.
    4. Ahsan Habib & Md. Borhan Uddin Bhuiyan, 2016. "Problem directors on the audit committee and financial reporting quality," Accounting and Business Research, Taylor & Francis Journals, vol. 46(2), pages 121-144, February.
    5. Anis Mnif, 2009. "Corporate Governance And Management Earnings Forecast Quality: Evidence From French Ipos," Post-Print halshs-00459171, HAL.
    6. Naeem Tabassum & Satwinder Singh, 2020. "Corporate Governance and Organisational Performance," Springer Books, Springer, number 978-3-030-48527-6, December.
    7. Zalata, Alaa Mansour & Tauringana, Venancio & Tingbani, Ishmael, 2018. "Audit committee financial expertise, gender, and earnings management: Does gender of the financial expert matter?," International Review of Financial Analysis, Elsevier, vol. 55(C), pages 170-183.
    8. Hooghiemstra, Reggy & Hermes, Niels & Oxelheim, Lars & Randøy, Trond, 2019. "Strangers on the board: The impact of board internationalization on earnings management of Nordic firms," International Business Review, Elsevier, vol. 28(1), pages 119-134.
    9. Marra, Antonio & Mazzola, Pietro & Prencipe, Annalisa, 2011. "Board Monitoring and Earnings Management Pre- and Post-IFRS," The International Journal of Accounting, Elsevier, vol. 46(2), pages 205-230, June.
    10. Nguyen, Quynh & Kim, Maria H. & Ali, Searat, 2024. "Corporate governance and earnings management: Evidence from Vietnamese listed firms," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 775-801.
    11. Delis, Manthos & Karavitis, Panagiotis & Klassen, Kenneth, 2018. "The corporate governance of profit shifting," MPRA Paper 88724, University Library of Munich, Germany.
    12. Susana Callao & José Ignacio Jarne, 2010. "Have IFRS Affected Earnings Management in the European Union?," Accounting in Europe, Taylor & Francis Journals, vol. 7(2), pages 159-189, December.
    13. Hussein A. Abdou & Nouran N. Ellelly & Ahmed A. Elamer & Khaled Hussainey & Hassan Yazdifar, 2021. "Corporate governance and earnings management nexus: Evidence from the UK and Egypt using neural networks," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6281-6311, October.
    14. García Osma, Beatriz & Guillamón-Saorín, Encarna, 2011. "Corporate governance and impression management in annual results press releases," Accounting, Organizations and Society, Elsevier, vol. 36(4), pages 187-208.
    15. Nguyen Thi Hoa Hong & Nguyen Thai Anh & Nguyen Tran Viet Hoang & Do Nhat Minh, 2023. "Corporate governance, external financing, and earnings management: new evidence from an emerging market," Future Business Journal, Springer, vol. 9(1), pages 1-22, December.
    16. Nagar, Neerav & Raithatha, Mehul, 2016. "Does good corporate governance constrain cash flow manipulation? Evidence from India," IIMA Working Papers WP2016-03-23, Indian Institute of Management Ahmedabad, Research and Publication Department.
    17. Frode Kjærland & Ane Tolnes Haugdal & Anna Søndergaard & Anne Vågslid, 2020. "Corporate Governance and Earnings Management in a Nordic Perspective: Evidence from the Oslo Stock Exchange," JRFM, MDPI, vol. 13(11), pages 1-18, October.
    18. Pierre Bonetti & Antonio Parbonetti & Michel Magnan, 2013. "The Influence of Country- and Firm-Level Governance on Financial Reporting Quality: Revisiting the Evidence," CIRANO Working Papers 2013s-03, CIRANO.
    19. Elnahass, Marwa & Salama, Aly & Yusuf, Noora, 2022. "Earnings management and internal governance mechanisms: The role of religiosity," Research in International Business and Finance, Elsevier, vol. 59(C).
    20. Muhammad Asad & Saeed Akbar & Sabur Mollah, 2024. "The role of independent directors’ tenure and network in controlling real-earnings management practices," Review of Quantitative Finance and Accounting, Springer, vol. 63(4), pages 1251-1279, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:futbus:v:9:y:2023:i:1:d:10.1186_s43093-023-00218-z. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.