The effect of equity ownership structure on non-conditional conservatism: an empirical study based on listed companies in Egypt

Abstract

Purpose This paper aims to examine the effect of different modes of equity ownership structure in unconditional conservatism of financial reporting for non-financial listed companies in Egypt. Design/methodology/approach Using a large sample of Egyptian non-financial listed companies for the period from 2011–2018, this paper used the ordinary least square regression model to test the impact of equity ownership equity on accounting conservatism based on an accrual-based measure developed by Givoly and Hayn (2000) and Ahmed and Duellman (2007). Findings The paper finds that, on average, Egyptian listed companies tend to demonstrate lower levels of unconditional conservatism during the period from 2011–2018. Regarding the different patterns of equity shareholding, a negative association between unconditional conservatism and managerial ownership is found. Briefly, the mild equity shareholding of managers in Egyptian listed companies is accompanied by higher demand for conservative reporting. Besides, a negative association is also reported for the relationship between concentrated ownership and unconditional conservatism in which the concentration of shareholding by a few numbers of individual investors lessen the demand for conservatism. By contrast, a non-significance relationship is reported neither for institutional shareholders nor for governmental ownership in their relationship with unconditional conservatism. Research limitations/implications The paper does not take into account the modifications conducted on the Egyptian accounting standards according to decree number 69 for the year of 2019 because they were not valid until the publishing of this paper. It considers only non-conditional conservatism. Practical implications First, the paper provides clear empirical evidence that Egyptian listed companies are adopting less-conservative accounting policies in their financial reporting during a high-tension period that witnessed several radical political and economic events. This evidence should stimulate regulators and policymakers to revisit the reporting standards to improve the quality of financial information and should also guide investors’ decisions because it helps in clarifying their interpretation of figures and trends reported in financial statements. Second, the paper would direct the attention of the Egyptian government to the importance of increasing their investment in the stock market to enhance its regulatory role. Third, it gives some implications to investors and policymakers toward the shape of the relationship between accounting conservatism and each pattern of equity shareholding in Egypt. Originality/value This paper visualizes an image toward the current state of equity ownership structure for listed companies in Egypt within a period that witnessed critical vulnerabilities and irregularities. In addition, it addresses how the accounting conservatism would be shaped according to the different types of equity shareholdings in Egypt.

Tax Avoidance Practises and Firm-specific Characteristics: Empirical Evidence from the Egyptian Listed Companies

“…That is, the Egyptian stock market is characterized by week investor protection and high level of corruption (Abd-Elmageed and Ashour,2021) as well as the dominance of the institutional owners over the equity shareholding (El-Masry, 2010). In addition, Egypt has passed a critical period at the political level since the Egyptian" revolution in 2011, followed by another revolution in 2013 (Aladwey, 2021). The Egyptian governments take radical actions toward tackling the diffusion of tax avoidance to increase its tax income revenue.…”

“…Subject to the International Monetary Fund (IMF)"s report issued in 2020, the Egyptian economy struggle to survive as the result of the variant political instability in the last decade. Beyond 2011, Egypt has witnessed highly tension period that is congested of many radical events at both economic and political levels, such as the two Egyptian revolutions in 2011 and 2013, the devaluation of the Egyptian pound in 2014 and the critical economic recovery initiatives and so on (Aladwey, 2021). Accordingly, subject to the atmosphere of the aforementioned instability in the economiy, it is expected that companies suffering from financial instability are more Tax Avoidance Practises and Firm-specific Characteristics: Empirical Evidence from the Egyptian Listed Companies oriented toward adopting more risky strategies and engaging in tax aggressiveness.…”

“…Panel A, Table II summarize the sample selection process as follows. First, similar to Ramadan (2015); Shahwan (2015) and Aladwey (2021), the financial companies (39 companies) are excluded from the sample due to their unique regulations for the financial reporting and disclosure. Second, the companies with missing data (5 companies) are also excluded from the target sample.…”

“…Egypt, as an emerging economy, greatly suffers from the tax avoidance activites. The gab in national tax law (Aldemrdash, 2020), the irregularities in the tax system (Ali et al,2017), the stream of uncertainties associated with the radical economic and political events (Abdelfattah andAboud, 2020 andAladwey, 2021) are all contributed such end. The Egyptian government begin series of steps toward the economic reestablishment and ensuring a fairer and stronger tax system is critical step toward this end (Elnaggar ,2020;Aladwey 2021).…”

“…The gab in national tax law (Aldemrdash, 2020), the irregularities in the tax system (Ali et al,2017), the stream of uncertainties associated with the radical economic and political events (Abdelfattah andAboud, 2020 andAladwey, 2021) are all contributed such end. The Egyptian government begin series of steps toward the economic reestablishment and ensuring a fairer and stronger tax system is critical step toward this end (Elnaggar ,2020;Aladwey 2021). Egypt takes serious action toward tackling the tax avoidance activities such as the issuance of the Unified Tax Procedure Law (UTP Law), No.206 in 2020; accompanied by a set of penalties for non-compliance taxpayers and engaging in global agreements to mitigate the companies" transfer of their profit to low-income countries.…”