Investigating the phenomenon of earnings management in the Egyptian stock market

Abstract

Purpose

The aim of this paper is to investigate the phenomenon of earnings management in Egypt, with particular reference to the pricing of IPOs. In addition, it aims to discuss its respondents' perceptions of the factors that are likely to weaken the effectiveness of internal corporate governance mechanisms in preventing the engagement in earnings management practices.

Design/methodology/approach

To achieve the objectives of this paper, a multi‐method approach was adopted. This approach includes secondary data analysis and the collection of primary data from a number of semi‐structured interviews.

Findings

The results indicate that Egyptian IPO managers have no incentive to affect the offering proceeds of their firms through exercising their discretion over the accounting accruals before going public. On the contrary, the results suggest that the amount of equity retained by issuers and the size of IPOs have a very significant impact on determining offering prices in the Egyptian stock market. The results also suggest that state‐owned enterprises are less eager to maximise their offering proceeds than privately owned companies.

Practical implications

The findings of this paper will be of interest to domestic and overseas investors in the Egyptian IPO market. This paper also provides many recommendations to the regulatory authorities in Egypt regarding ways to strengthen and reinforce the internal governance structure of companies.

Originality/value

There has so far been relatively little or no research into earnings management practices in Egypt. The multi‐cultural roots of Egyptian society make it different from other societies and hence distinguish it as a setting for our study.

Citation

Kamel, H. and Elbanna, S. (2012), "Investigating the phenomenon of earnings management in the Egyptian stock market", Corporate Governance, Vol. 12 No. 3, pp. 337-352. https://doi.org/10.1108/14720701211234591