By appearance and/or by amount: The impact of presence and size of audit committees on real earnings management in Bangladesh

Abstract

In this study, we analyze how the presence and size of audit committees are interrelated to real earnings management empirically in the context of Bangladesh. To accomplish our study, we utilize a sample of 2191 firm year observations listed on the Dhaka Stock Exchange throughout the period of 2000-2017. Our study ascertains that the size of audit committees is negatively associated with real earnings management. Results also demonstrate that all three composite measures of real earnings management are negatively associated with the size of audit committees. More specifically, large audit committee are more capable of restraining managers from real earnings management practices through changing discretionary expenses. On the other hand, presence of audit committees is also negatively associated with real earnings management Though this association is not statistically significant. It indicates that the presence of audit committees will not improve the situation considerably; rather, experience, diversification, size, and independence may offer opportunities for positive changes. Regulators may be aware of this and change the provision of audit committee formation accordingly.