Exploring the potentials of clawbacks to check earnings management practices and enhance financial reporting quality: perceptions from the UAE

Abstract

Purpose

For investors to wholeheartedly entrust their finances to the supposed executives, there is the need to set up policies to checkmate the excesses of such executives, hence clawback policy. This study aims to explore the perceptions of professionals regarding the impact of clawback provisions on earnings management (EM) and financial reporting quality in the context of the United Arab Emirates (UAE).

Design/methodology/approach

The application of a qualitative approach in an EM is of great significance in this study. For convenience, perceptions of the professionals were collected through semi-structured face-to-face interviews, internet forums and telephone conversations from which the data were initially transcribed and analyzed using thematic analysis.

Findings

The findings of the study indicate that clawbacks will have a significant impact on EM and financial reporting quality, and apart from this, other firm-level factors have also been supporting clawbacks.

Practical implications

EM has been a widespread practice; this research may potentially assist directors and regulatory bodies to comprehend factors that should be considered to reduce it. It may also provide practical insights from professionals regarding clawbacks and their bearing on EM and the quality of financial information from an emerging economy perspective.

Originality/value

A significant gap in the contemporary literature regarding the impact of clawback provisions on EM and financial reporting quality has been filed by this work, in the context of the UAE economy. Consequently, it provides a great insight into the effect of clawback in a business setting and how it can help checkmate the excesses of company executives.

Citation

Mahmood, K., Barghathi, Y. and Lasyoud, A.A. (2021), "Exploring the potentials of clawbacks to check earnings management practices and enhance financial reporting quality: perceptions from the UAE", Qualitative Research in Financial Markets, Vol. 13 No. 3, pp. 359-382. https://doi.org/10.1108/QRFM-05-2020-0081