The Impact of Firm-specific Characteristics and Profitability on Earnings Management: An Empirical Analysis of Firms Listed on Egyptian Stock Exchange

The accounting literature has extensively focused on earnings management, with ongoing concerns from practitioners and regulators. Various methods and techniques are employed in earnings management, all tailored to management's goals. The aim of this research is to investigate the factors affecting earnings management among firms listed on the Egyptian Stock Exchange (EGX), while accounting for the impact of external shocks (2011 revolution, COVID-19 pandemic and currency devaluation) that occurred during the study period. This was accomplished by analyzing the impact of these external shocks in the main analysis, alongside conducting a separate comparative analysis to specifically investigate the exact effect of currency devaluation as the main event during the sample period. The study sample includes 70 non-financial firms from the top 100 most active firms listed in EGX, analyzed all over an 11-year period from 2012 to 2022. Using fixed effects multiple regression, findings reflect a significant positive relationship between earnings management and the independent variables: financial leverage, firm size, receivables turnover, ROA and the period of currency devaluation. In contrast, operating cash flow shows a significant negative relationship with earnings management. However, ROE, liquidity, the period of COVID-19 pandemic, and the period of 2011 revolution exhibit an insignificant relationship with earnings management. In addition, results of the comparative analysis shows that currency devaluation has a significant effect. Pre-devaluation, ROA and operating cash flow only have significant impact on earnings management, while firm size, receivables turnover, ROE, and liquidity have insignificant impacts. Post- devaluation, the impact of firm size and receivables turnover turned to be significant on earnings management. Resulting in firm size, receivables turnover, ROA and operating cash flow having a significant impact on earnings management post-devaluation, while ROE and liquidity have insignificant impact.