The effect of political-economic reform on the quality of financial reporting in Egypt

Abstract

Purpose This paper aims to study the influence of political-economic reform and especially privatisation on the quality of financial reporting of the Egyptian companies. Design/methodology/approach The paper analyses data from official documents and 34 interviews with company executives, financial analysts, external auditors and Stock Exchange regulators to inform our understanding of the relationship between changes in the Egyptian environment and the quality of financial reporting. Findings The findings of the research suggest that the recent Egyptian political-economic reform, resulting in privatisation has significant influence on negative accounting practices and hence on lowering the quality of financial reporting through its effect on: departure from uniform accounting system and public accounting regulations; issuing new stock exchange regulative rules; reviving the role of Stock Exchange; and increasing competition within Stock Exchange regarding raising funds. Originality/value This paper contributes to the literature by identifying the effect of socio-cultural factors on motivating executives to 7 exercise negative accounting practices and hence producing low-quality financial reports (FRs) and by highlighting the fact that accounting practices cannot be generalised worldwide due to the absence of universal socio-cultural factors which shape these practices. This paper employs new institutional sociology theory and contributes to that theory by acknowledging the active interplay between institutional context and economic environment.

Corporate governance and risk disclosure quality: Tunisian evidence

“…In addition, we can rely on the institutional economic theory to explain the behavior of companies at the time of political changes. For that, through prior studies, Makhaiel and Sherer (2018) investigated through an interpretive approach the impact of socioeconomic factors on the quality of financial reporting in an Egyptian context. They argued that according to the institutional theory, a coercive pressure leads regulators to enforce rules in order to have better performance and practices of companies.…”

Financial reporting under economic policy uncertainty

“…On the other hand, Silva et al (2014) and Ozili and Arun (2018) find that earnings management is more pronounced during crisis years. Makhaiel and Sherer (2018) investigate the effect of political-economic reform on financial reporting quality among Egyptian companies and find that the Egyptian political-economic reform led to the privatization of firms and also led to lower financial reporting quality.…”

The Quality of Local Government Reports in Indonesia: A Meta Analysis Study

“…Research from Nkundabanyanga et al, (2013) in Uganda found that Accounting Standards and Legal Frameworks have a positive and significant impact on the Quality of Financial Statements in the Ugandan Ministry of Government. In line with this, Makhaiel (2016) in Egypt, namely Egypt's political-economic reforms have a negative effect on the quality of the Egyptian government's financial reports. Politicaleconomic reforms led to privatization that had the following impacts: Deviation from a uniform accounting system and regulations on public accountants, issuing new regulations on stock exchanges, reviving the role of stock exchanges, and increasing competition in stock exchanges.…”