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Religiosity at the top: does it interact with accounting expertise to limit real earnings management?

Purpose Research investigating the association between religiosity and earnings management has concentrated on accruals-based earnings management, relying heavily on society’s religiosity, but it has neglected the interaction between religiosity and formal monitoring mechanisms. This study aims to e...

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Published in:Managerial auditing journal 2020-12, Vol.35 (9), p.1343-1377
Main Authors: Baatwah, Saeed Rabea, Al-Qadasi, Adel Ali, Al-Ebel, Abood Mohammad
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Language:English
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container_title Managerial auditing journal
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creator Baatwah, Saeed Rabea
Al-Qadasi, Adel Ali
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description Purpose Research investigating the association between religiosity and earnings management has concentrated on accruals-based earnings management, relying heavily on society’s religiosity, but it has neglected the interaction between religiosity and formal monitoring mechanisms. This study aims to examine how the religiosity and accounting expertise traits of top leaders are associated with real earnings management (REM) and how they interact to eliminate these practices. Design/methodology/approach Using a sample of 943 year-observations from more religious settings, this paper collects data for four measures of REM, and for religiosity and accounting expertise of audit committee (AC) chair and chief executive officer (CEO). Multivariate regression is used to test the study hypotheses. Findings The findings are consistent with the predictions that religious top leaders are not associated with lower REM, while top leaders with accounting expertise, in some cases, are associated with lower REM. This paper also finds that a leader with religious belief and accounting expertise dramatically lowers REM. These findings are robust under a battery of sensitive analyzes. In an additional analysis, this paper observes the interaction effect between these two traits is strengthened if the board chair is religious, and persists even for larger firms or those with a highly concentrated ownership structure. Originality/value The paper provides evidence that may serve a variety of decision-makers. It is the first to show that the interaction between religiosity and expertise is crucial in curbing REM. It also provides the first evidence for the role of the AC chair in relation to REM.
doi_str_mv 10.1108/MAJ-12-2019-2521
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source ABI/INFORM global; Emerald:Jisc Collections:Emerald Subject Collections HE and FE 2024-2026:Emerald Premier (reading list)
subjects Accounting
Behavior
Chief executive officers
Corporate culture
Earnings management
Ethics
Financial reporting
Investigations
Muslims
Public Company Accounting Reform & Investor Protection Act 2002-US
Religion
Risk aversion
title Religiosity at the top: does it interact with accounting expertise to limit real earnings management?
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