Ethical leadership, managerial risk-based incentives, and accounting conservatism: a comparative evidence from Egypt and Saudi Arabia

Maysa Ali M. Abdallah ()
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Maysa Ali M. Abdallah: Tanta University

Future Business Journal, 2025, vol. 11, issue 1, 1-16

Abstract: Abstract This study investigates how managerial risk-based incentives and ethical leadership influence accounting conservatism in Egyptian and Saudi-listed companies from 2018 to 2020. Drawing on Agency, Upper-Echelons and Social Learning theories, this paper examines the relationship between managerial risk-based incentives, specifically, incentive stock options and performance-based bonuses, and conservative financial reporting. Also, it investigates the moderating effect of ethical leadership on this relationship. Using a panel regression analysis for 110 firms with 330 firm-year observations, the main results indicate that both incentive stock options and performance are positively associated with accounting conservatism, suggesting that these incentives encourage more conservative financial reporting. Furthermore, ethical leadership strengthens this positive relationship in the Egyptian market by promoting conservative practices through role modeling and behavior reinforcement. Meanwhile, it enhances transparency in the Saudi Arabian market, moderating the effect of incentives on conservatism. These findings highlight the context-specific role of ethical leadership in shaping financial reporting practices. This study contributes to accounting literature by providing comparative evidence from two major security markets in the Middle East and North Africa, addressing a gap in understanding the association between leadership ethics and incentive structures in emerging economies. It highlights the importance of ethical leadership in shaping cautious financial reporting, offering valuable insights for regulators and policymakers in these regions.

Keywords: Accounting conservatism; Managerial risk-based incentives; Ethical leadership; Incentive stock options; Performance-based bonuses; Social learning theory; Upper-echelons theory (search for similar items in EconPapers)
JEL-codes: G41 J33 M41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1186/s43093-025-00546-2

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