The Impact of Ownership Structure on Real Earnings Management in an Emerging Market: The Moderating Role of Board Composition in Egypt

This study examines the relationship between ownership structure and real earnings management (REM), with a specific focus on the moderating role of board composition in the context of Egyptian listed firms. In emerging markets like Egypt, where governance frameworks often face challenges such as concentrated ownership, regulatory gaps, and limited board independence, understanding how these factors interact to influence financial reporting practices is critical. REM—manipulation of real business activities to alter reported earnings—poses serious risks to financial transparency and stakeholder trust, particularly in economies where enforcement mechanisms are still developing.
The study employs a quantitative research design, utilizing panel data from 60 non-financial firms listed on the Egyptian Stock Exchange over the period 2019–2023. Ownership structure is categorized into family, state, institutional, and foreign ownership. REM is measured using a combination of abnormal operating cash flows, discretionary expenses, and cost of goods sold. Board composition is operationalized based on the proportion of executive versus non-executive directors. Regression analysis and moderation testing are conducted using SPSS, the Process Macro extension, and STATA.

Findings reveal that all four ownership types are significantly and negatively associated with REM, indicating their effectiveness in reducing earnings manipulation. Moreover, board composition plays a moderating role: executive-dominated boards strengthen the negative relationship between ownership and REM, while non-executive boards tend to weaken it. These results provide nuanced insights into corporate governance in emerging markets and offer practical implications for firms, investors, and regulators aiming to enhance financial integrity and reporting quality.