Can artificial intelligence and blockchain condition governance mechanisms to restrict earnings management?

Ummar Faruk Saeed ()
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Ummar Faruk Saeed: Jiangsu University

SN Business & Economics, 2025, vol. 5, issue 12, 1-35

Abstract: Abstract In an era where trust in financial reporting is more critical than ever, the effectiveness of corporate governance has come under renewed examination. Amidst growing complexities in organizational operations and rapid technological advancements, understanding how governance mechanisms adapt and function is essential, particularly within the context of emerging economies like China. This study sought to address three pivotal research questions: First, to what extent does the effectiveness of corporate governance reduce earnings management and enhance earnings quality? Second, do disruptive technologies such as artificial intelligence (AI) and blockchain play a direct role in improving earnings quality? Third, can these technologies moderate the relationship between corporate governance and earnings management, thereby amplifying the efficacy of governance mechanisms? Using firm-level panel data from 2015 to 2024 and grounded in agency and institutional theoretical perspectives, the study employed robust econometric techniques, namely instrumental variable two-stage least squares (IV-2SLS) and high-dimensional fixed effects (HDFE), to mitigate endogeneity concerns and unobserved heterogeneity. The findings consistently revealed that effective board oversight and audit committee practices are instrumental in minimizing earnings manipulation. Furthermore, both AI and blockchain adoption not only independently reduce earnings management but also enhance the positive influence of corporate governance structures in promoting earnings quality. The study ultimately contributes a nuanced understanding of how technological transformation interacts with governance mechanisms to promote financial transparency and reporting integrity.

Keywords: Corporate governance; Earnings quality; Artificial intelligence; Blockchain technology; Financial firms; Emerging economy (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s43546-025-00973-x

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