Abstract:
Effects of corporate governance practices on various financial, managerial, and
operational activities within organizations have been extensively studied in the previous
two decades. Earnings management, viewed as legal and appropriate means by some
researchers and illegal by others, is one of the financial activities that could be impacted by
the corporate governance practices of the organization. Higher level of implementation of
the corporate governance components (transparency of financial data, board of directors,
ownership structure, corporate social responsibility and audit committee) is thought to
reduce unfavorable earnings management. Several recent studies have concluded that
Lebanese corporations do not give corporate governance much importance. Moreover,
earnings management has not been tested thoroughly within the Lebanese context. This
study focuses on determining the impact of good corporate governance practices on
reducing unfavorable earnings management activities. In particular, the study aims at
identifying the corporate governance components to reducing unfavorable earnings
management by Lebanese organizations. Data were collected from questionnaires which
were distributed to employees working at various Lebanese companies and having a certain
level of familiarity with their company’s financial reporting. Results show that companies
with higher degree of independence of the board of directors, effective audit committee,
transparency in terms of financial reporting, and good corporate social responsibility
practices tend to have less unfavorable earnings management.
