Whistleblowing Disclosure as a Shield Against Earnings Management: Evidence from the Insurance Sector

Ines Belgacem ()
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Ines Belgacem: College of Business, Imam Mohammad Ibn Saud Islamic University (IMSIU), Riyadh P.O. Box 5701, Saudi Arabia

JRFM, 2025, vol. 18, issue 2, 1-23

Abstract: One of the fundamental components of internal controls, a whistleblowing system (WBS) is crucial for preventing fraud, addressing irregularities, and enhancing good governance. The purpose of this study is to investigate the impact of whistleblower disclosures on earnings management in Saudi Arabia’s Takaful Insurance (TKI) sector between 2017 and 2023. To this end, a whistleblowing index was constructed as a tool to evaluate the whistleblowing framework’s effectiveness. Using the Dynamic Generalized Method of Moments (GMM) to account for endogeneity, it was found that most Saudi insurance companies increased their efforts to disclose information about whistleblowers, which significantly reduced earnings management practices. Specifically, the study concludes that the size of the audit committee (ACS) significantly and negatively affects how insurance businesses manage their earnings when a whistleblower system is in place. Additionally, there is a notable and adverse effect on earnings management from board size (BSZ), the percentage of non-executive independent members (PNIM), and Shariah board size (SBS). However, it was found that earnings management is unaffected by the frequency of board meetings (BMFR). This study adds to the body of knowledge by demonstrating how corporate governance enhances the effectiveness of the whistleblowing system.

Keywords: Takaful Insurance; Saudi Arabia; earnings management; whistleblowing disclosure; corporate governance (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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