Journal of Emerging Trends in Economics and Management Sciences: Home

Article Title:
Evaluating the Relationship between Ownership Structure as Corporate Governance Mechanism and Accounting Earnings Management Tools on the Financial Performance: A Case of Egypt
by MRs. Eman Fathi Attia and Prof. Dr. Ibrahim Raslan Hegazy

Abstract:
This study focused on examining whether the internal mechanisms of corporate governance especially ownership structure (institutional /family) can control earning management manipulations and enhance the firm performance. As there has been an ongoing debate and conflict on whether the existence of institutional /family ownership eliminate or increase accounting earning management manipulations in the listed companies in Egyptian stock exchange. This study focused on 49 listed companies whose shares are among Egypt?s 100 most actively traded shares (EGX100 price index) form the years (2006 to 2013) after excluding Firms with insufficient data, Banks and Financial Institutions, and Insurance companies from annual reports of Egyptian companies, Egyptian disclosure Books, and Egyptian financial statements. The study employs an advanced panel threshold regression estimation developed in 1999 by Hansen that test whether there are positive and negative impacts of ownership structure on earning management and firm value. This estimation procedure has the advantage of quantifying the threshold level of ownership structure as compared to the ad hoc classification procedure of splitting the sample. The results show that institutional ownership is only pertinent to the firm value up to a threshold level from (62%- 64 %). While, family ownership is only pertinent to the firm value up to a threshold level from (36%-41%).Additional increase in level of ownership structure beyond the threshold level does not add to a firm's value. This is the first study to look at this issue for Egyptian listed firms to apply the appropriate level of ownership structure, which would thus decrease the management opportunistic behavior, and maximize the firm and stockholders' value. An excessive level of ownership structure could lead to sever agency problems and overhang situation at the microeconomic firm level; this could eventually could cause vulnerability in financial systems and thus lead to the financial catastrophes. These suggested amendments could contribute towards enhancing the impact of the Egyptian corporate governance guidelines on the performance of listed companies in the Egyptian capital market. Regulatory bodies such as Securities Commission, Egyptian stock Market and Committee of Egyptian Code of Corporate Governance need to take note on the percentage of concentrated ownership among the Egyptian listed companies to enhance and develop performance of Egyptian stock exchange.

Keywords: institutional-ownership, family-ownership, corporate governance, accounting earning management, financial performance, egyptian stock market, and panel threshold analysis

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