Capital structure and earnings management: evidence from Saudi Arabia

Author:

Alsaadi Abdullah

Abstract

Purpose This study aims to examine how capital structure influences earnings management for firms in the Saudi market, which is influenced by an Islamic environment that discourages excessive borrowing. Design/methodology/approach This study uses a data set that covers the period from 2013 to 2020 for firms listed on the Saudi Stock Exchange (Tadawul) and uses panel data regression models to test the impact of capital structure on earnings management. Findings The empirical results reveal that earnings manipulation is less common among firms that have less debt, which implies that firms in the Saudi market face high scrutiny to maintain lower leverage to meet the investment requirements of stakeholders based on religious status, which in turn reduces information asymmetry and constrains opportunistic behaviour in managing earnings. Practical implications This study provides insights for regulators, investors, and managers on the role of religion in shaping capital structure and monitoring financial reporting practices. This study recognises that firms’ decision-making can be explained by non-economic motives, such as religion, which can serve as a less costly external mechanism to alleviate agency costs compared to other economic motives. Originality/value This study contributes to the literature by exploring how capital structure and earnings management relate to a distinctive and unique Islamic context that remains largely unexamined. This context allows us to investigate this issue by examining how the Islamic environment, which is not driven by economic or legal reasons, affects managers’ choices of capital structure and earnings management. This study reveals how a strong religious setting can shape firms’ choices regarding capital structure and financial reporting practices.

Publisher

Emerald

Reference57 articles.

1. Markets and institutions in financial intermediation: National characteristics as determinants;Journal of Banking and Finance,2009

2. The influence of religion on the determinants of capital structure: the case of Saudi Arabia;Journal of Islamic Accounting and Business Research,2020

3. The impact of religious certification on market segmentation and investor recognition;Journal of Corporate Finance,2019

4. The impact of shari’a compliance advices (SCAs) on the saudi capital market: Evidence from the IPO market,2018

5. What factors drive Saudi stock markets?–firm characteristics that attract retail trades;International Review of Economics and Finance,2022

同舟云学术

1.学者识别学者识别

2.学术分析学术分析

3.人才评估人才评估

"同舟云学术"是以全球学者为主线,采集、加工和组织学术论文而形成的新型学术文献查询和分析系统,可以对全球学者进行文献检索和人才价值评估。用户可以通过关注某些学科领域的顶尖人物而持续追踪该领域的学科进展和研究前沿。经过近期的数据扩容,当前同舟云学术共收录了国内外主流学术期刊6万余种,收集的期刊论文及会议论文总量共计约1.5亿篇,并以每天添加12000余篇中外论文的速度递增。我们也可以为用户提供个性化、定制化的学者数据。欢迎来电咨询!咨询电话:010-8811{复制后删除}0370

www.globalauthorid.com

TOP

Copyright © 2019-2024 北京同舟云网络信息技术有限公司
京公网安备11010802033243号  京ICP备18003416号-3