Audit committee composition and earnings management in a specific institutional environment: the case of Russia

Abstract

Purpose The purpose of this paper is to investigate the specifics of the relationship between audit committee characteristics and earnings management in Russian listed companies. This research is driven by the possibility of placing this relationship within the context of a specific institutional environment for company performance. Design/methodology/approach The authors apply a panel study of 184 Russian listed companies for the period 2014–2018. In addition to the standard fixed effects model, the authors test the results for potential endogeneity with two-stage least squares (2SLS) analysis. Findings The results show that audit committee representation on the board of directors results in some mitigation of earnings management. Results reveal that a higher level of audit committee independence and the presence of financial expertise on the committee are associated with lower earnings management. However, companies with relatively busy directors on audit committees are more inclined to practice earnings management. The study’s findings hold after testing for endogeneity of audit committee independence. The authors also reveal that some audit committee characteristics (for example, audit committee independence; its level of expertise) alleviate earnings management in listed state-owned companies (SOEs) more strongly than in listed non-SOEs. Originality/value The results add to the ongoing debate on the role of corporate governance mechanisms in mitigating earnings management in emerging markets by taking into account the type of ownership (state-owned vs private) as a moderating variable. This study reveals, in particular, that the effect of certain audit committee characteristics on earnings management is more prominent in listed SOEs than in listed non-SOEs.

Political connections and financial performance: the moderating role of director efficacy

“…The present study follows two steps to produce a score of four characteristics of the BoD, representing its efficacy. The first step is to measure the four characteristics of director efficacy individually, and these are based on the following metrics: Director independence is the ratio of independent and non-executive directors to the total number of the members of BoD (Bhat et al , 2018; Raimo et al , 2022; Nikulin et al , 2022). Female director representation is the percentage of female directors on corporate boards (Terjesen et al , 2016; Proenca et al , 2020; Saad and Belkacem, 2021).…”

The Audit Committees, Internal Audit and External Audit Quality Effects on Earnings Management: An Analysis of Malaysian Government-Linked Companies

“…The main responsibilities of an AC include overseeing and monitoring the financial reporting process, identifying and discussing any significant accounting policies, reviewing management's analyses of significant issues in financial reporting and reviewing the effects of regulatory and accounting initiatives (Deloitte 2018). In the context of Russia, a recent study reported that AC representation on the board of directors will lead to a lower EM (Nikulin et al 2022). Likewise, by using meta-analysis, Inaam and Khamoussi (2016) found that an effective AC limits the opportunistic behaviour of management and enhances the supervision of companies.…”

“…Researchers had found an inverse relationship between the independence of EM and AC (Mardessi 2022;Nikulin et al 2022). This line of research suggested that independence of AC may balance the different views between managers and external auditors; and thus, resulting in a higher quality financial report (Kusnadi et al 2015).…”

Bibliometric analysis on corporate governance topics published in the journal ofCorporate Governance: The International Journal of Business in Society

“…This would help in determining specific corporate governance frameworks according to the institutional context and industry type. Corporate governance and earnings management: Earnings management relates to information manipulation methods that weaken the association between accounting information and a company’s real performance. Fera et al (2022) examine the association between minority directors and earnings management in Italy, while Nikulin et al (2022) examine the relationship between audit committees and earnings management in Russia. There is a need to examine the potential impact of other corporate governance mechanisms on earnings management practices to implement the necessary corporate governance adjustments within companies and improve the quality of accounting information. Corporate governance and integrated financial reporting : Integrated reporting is a vital part of the process of improving a company’s performance by identifying the various factors that influence its sustainable development.…”

“…Corporate governance and earnings management: Earnings management relates to information manipulation methods that weaken the association between accounting information and a company's real performance. Fera et al (2022) examine the association between minority directors and earnings management in Italy, while Nikulin et al (2022) examine the relationship between audit committees and earnings management in Russia. There is a need to examine the potential impact of other corporate governance mechanisms on earnings management practices to implement the necessary corporate governance adjustments within companies and improve the quality of accounting information.…”