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

Saeed Rabea Baatwah (Department of Accounting, College of Business Administration, Shaqra University, Afif, Saudi Arabia and Department of Accounting, College of Administrative Sciences, Seiyun University, Seiyun, Yemen)
Adel Ali Al-Qadasi (Department of Accounting, College of Science and Humanities, Shaqra University, Al-Dawadmi, Saudi Arabia and Department of Accounting, College of Commerce and Economy, Hodeidah University, Hodeidah, Yemen)
Abood Mohammad Al-Ebel (Department of Accounting, Faculty of Administrative Sciences, Hadhramout University, Mukalla, Yemen)

Managerial Auditing Journal

ISSN: 0268-6902

Article publication date: 27 November 2020

Issue publication date: 15 December 2020

699

Abstract

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.

Keywords

Acknowledgements

The authors thank the editor Professor Vivek Mande and the two anonymous reviewers for valuable comments and suggestions.

Citation

Baatwah, S.R., Al-Qadasi, A.A. and Al-Ebel, A.M. (2020), "Religiosity at the top: does it interact with accounting expertise to limit real earnings management?", Managerial Auditing Journal, Vol. 35 No. 9, pp. 1343-1377. https://doi.org/10.1108/MAJ-12-2019-2521

Publisher

:

Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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