The Impact of Audit Committee Characteristics on Earnings Management in the Pre- and Post- Bahraini Corporate Governance Code 2011

Aims: This study tends to measure the effectiveness of the Bahraini corporate governance code (BCGC) 2011 on curbing earnings management practices by using audit committee (AC) characteristics in the pre- and post- BCGC 2011.

Study Design: The AC characteristics examined are AC independence, AC meetings and AC experts. To present evidence on whether the BCGC 2011 decreases the level of earnings management, this study investigated this issue by comparing the regression results in the pre- and post- BCGC 2011.

Place and Duration of Study: The initial study sample includes all Bahraini companies listed on the Bahrain Bourse (BB) for the year 2010 and for the year 2012, one year data before and one year data after implementing the BCGC 2011.

Methodology: Ordinary least-squares regression is used to examine the association between AC characteristics and earnings management practices pre- and post- BCGC 2011. The regression model is implemented separately for the year 2010 and for the year 2012.

Results: The results of the regression model show that earnings management does not significantly associated with any of the AC characteristics even pre- or post- the BCGC 2011.

Conclusion: The results may suggest that ACs doesn’t provide incremental monitoring in curbing earnings management in the post- BCGC period. The results of this study called for future research to examine the impact of BCGC 2011 on earnings management by using the board functions in addition to the AC functions in the regression model, and by using more years data pre- and post- BCGC 2011. This study contributes geographically to the effectiveness of ACs and earnings management literatures by analyzing data from an emerging market, and it has potential implication for regulators and policy-makers in Bahrain to increase the effectiveness of ACs.