Audit committee characteristics and earning management of insurance companies in Ethiopia

Ayalew Ali

Cogent Business & Management, 2024, vol. 11, issue 1, 2301136

Abstract: One of the key components of corporate governance frameworks, the audit committee is a potent instrument for controlling and supervising earning management. It might significantly affect how decisions about internal firm-board monitoring are made. The purpose of this study was to investigate the impact of audit committee features on the earning management of insurance businesses in Ethiopia from 2015 to 2022. The impact of audit committee features on earning management was studied using the generalized moment (GMM) model. According to the study, the size of the audit committee (ACS) has a significant and positive impact on the insurance companies’ earnings management in Ethiopia. Additionally, the study discovered that the audit committee’s independence (ACI), expertise (ACE), meeting (ACM), and gender (ACG) all have a significant and positive impact on the earning management of insurance companies in Ethiopia. Thus, the study came to the conclusion that all audit committee characteristic measures have a significant impact on the discretionary accrual (DA)-measured earning management of insurance businesses in Ethiopia. Therefore, the internal governance mechanisms should be strengthened and improved by insurance company policymakers in Ethiopia.The topic of earnings management has been the subject of discussion by researchers around the world for many decades. The earnings management is the use of accounting techniques to produce financial statements that present an overly positive view of a company’s business activities and financial position. Based on previous literature, the factors that influence earnings management have been subjected to extensive investigations in developed countries; one of the most important factors was the audit committee characteristics. This paper aims to illustrate the effect of audit committee characteristics on the earning management of insurance companies in Ethiopia and provide additional insights into the literature of emerging markets. The results indicate strong evidence for the important role of audit committee characteristics in explaining the differences in earning management. Therefore, the internal governance mechanisms should be strengthened and improved by insurance company policymakers in Ethiopia.

Date: 2024
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DOI: 10.1080/23311975.2023.2301136

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