Anti-corruption disclosure quality and earnings management in the United Kingdom: the role of audit quality

Purpose Building upon institutional pressures on firms to deal with corruption, this study aims to investigate the association between a firm's engagement with anti-corruption disclosure quality (ACDQ) and earnings management (EM). Also, this study examines the moderating role of audit quality in the association between ACDQ and EM. Design/methodology/approach The authors constructed an ACDQ index based on the 2010 UK Bribery Act and taking into account a wide range of rules on corruption and bribery, including those of the OECD, World Bank, UNCTAD, UNGC, UNCAC and GRI. Generalized method of moments and panel regression were used to examine the association between ACDQ and EM. Findings Using a sample of 2, 695 firm‐year observations of the UK’s FTSE-350 from 2008 to 2018, this study finds ACDQ is negatively associated with EM. In addition, this negative relationship is contingent on audit committee independence and audit committee expertise. This finding is supported by additional robustness and sensitivity analysis. Practical implications The empirical evidence reiterates the crucial need for more concerted efforts to ensure corporate engagement in anti-corruption practices with a view to reducing earnings manipulations. Originality/value This study contributes to the limited evidence that investigates how ACD Q influences EM in the UK after the introduction of the UK Bribery Act in 2010. Furthermore, by considering the period from 2008 to 2019, this study investigates the potential moderating role of UK corporate governance reforms in EM reduction. In particular, to the best of the authors’ knowledge, this study assesses for the first time the moderating effect of audit committee mechanisms on the ACD Q and EM nexus.