Khaled Samaha

An empirical analysis of corporate governance structures and voluntary corporate disclosure in volatile capital markets: the Egyptian experience

This paper examines the level and determinants (i.e. ownership structure, board composition and audit committee presence) of voluntary corporate disclosure in the annual reports of the largest 100 companies listed on the Egyptian stock exchange (EGX). Our results indicate that overall voluntary disclosure was low at just 13.43% with a large variation range. This score places Egypt at a lower level than other emerging capital markets (e.g. Singapore, Hong Kong and Malaysia). The variances of these results support the need for individual country level studies and comparative analysis. Multivariate results show audit committee presence as the most significant variable influencing voluntary disclosure. Also, companies with a higher ratio of independent non-executive directors have a higher extent of voluntary disclosure. It was also evidenced that voluntary disclosure increases with decreases in block-holder ownership. Results show that two other ownership aspects – managerial and government – are not related to voluntary disclosure. Finally, the analysis shows profitability and internationality significantly impact voluntary disclosure. On the other side, that number of shareholders, type of auditor, size, liquidity, leverage and industry type of the firm do not affect the extent of voluntary disclosure.

Compliance with International Accounting Standards in a national context: some empirical evidence from the Cairo and Alexandria Stock Exchanges

The contribution of this paper is to provide evidence, from a sample of 281 listed companies, about Egyptian convergence to international accounting. We construct indices to measure both disclosure and measurement/presentation convergence, and the impacts of education and training, tax, and three company characteristics on compliance. Compliance, which is low, is associated with the volume of trading in company stocks, but not with industry sector or legal status. The findings suggest weak enforcement, and a need for education and training of accountants, and the removal of adverse tax implications for companies if increased convergence is to be achieved.The contribution of this paper is the provide evidence from a sample of 281 companies about Egyptian convergence to international accounting. We construct indices to measure convergence and the impacts of education, tax and three company characteristics on compliance. Compliance, which is low, is associated with the volume of trading in company shares, but not with industry sector or legal status. The findings suggest weak enforcement, the need for education of accountants and the removal of adverse tax implications for companies if increased convergence is to be achieved.

Internal Control Quality, Egyptian Standards on Auditing and External Audit Delays: Evidence from the Egyptian Stock Exchange

This paper examines the impact of internal control quality (ICQ) on external audit delays as proxied by the auditor component of audit report lag (A‐ARL) and the effect of the adoption of the Egyptian Standards on Auditing (ESA) on this relationship in the Egyptian context. Using a balanced panel data of 344 firm‐year observations spanning from 2007 to 2010, we hypothesise and empirically find the following. First, ICQ represents a key determinant of timely disclosure, as it contributes significantly to the reduction of A‐ARL. Second, the adoption of the ESA has significantly contributed to the improvement of audit practices by reducing A‐ARL. Third, the adoption of ESA has also strengthened the relationship between A‐ARL and ICQ for the post‐adoption period of these standards. Additional analysis is conducted to examine the impact of industry characteristics on the relationship between ICQ and A‐ARL and the association remains significant regardless of the sector considered. In order to make a more informative analysis, we examine the effect of ICQ on the management component of audit report lag (M‐ARL) and we document a positive association between both variables. The results contribute to the literature dealing with the relation between A‐ARL and ICQ by shedding light on the importance of ICQ in audit practices in an emerging country characterised by weak legal enforcement and a high level of secrecy. Findings also have policy implications for Egyptian standard‐setters with respect to the development of internal auditing standards.

Factors Influencing Corporate Disclosure Transparency in the Active Share Trading Firms: An Explanatory study

Purpose – This study examines the factors influencing Corporate disclosure transparency as measured by the level of voluntary disclosure (VD) in the annual reports of the active share trading firms in Egypt. Design/methodology/approach – The design and research method are empirical using archival data to collect information on the dependent variable (VD) and independent variables (corporate governance characteristics and company characteristics). A transformed multiple ordinary least squares (OLS) regression model was used to test the association between the dependent variable of VD and the independent variables. Findings – The findings indicate that the extent of VD is affected by the highly secretive Egyptian culture. This implies that the introduction of a new corporate governance code has not improved information symmetry as the overall level of VD is very low at just 19.38%. In addition, several corporate governance and company characteristics variables were found significant in explaining levels of VD by the sample companies. Research limitations – The findings have generalizability limitations as the study focuses only on the actively traded companies operating in the Egyptian stock market. Practical implications – The results of this study should alarm the regulators and financial investors from the quality of financial information being provided in the Egyptian market. These results are more alarming since the investigated companies are the top 30 actively traded companies on the Egyptian Stock Exchange (EGX). It is logically expected that the status of disclosure would be lower in the other less actively traded companies on EGX. Originality/value – This study provides evidence regarding three variables, for the first time in Egypt, namely “ownership structure” and “number of independent directors on the board” and “existence of audit committees” as explanatory variables of the level of VD. This research study will stimulate further research in understanding the importance of the role of corporate governance in promoting more transparency in other emerging economies and the need to build models that include country level factors to explain the level of VD.

Firm-specific determinants of the extent of compliance with international accounting standards in the corporate annual reports of companies listed on the Egyptian Stock Exchange: a positive accounting approach

This paper examines the firm specific characteristics – as a proxy for positive accounting research – that are associated with the propensity of companies listed on the Cairo and Alexandria Stock Exchanges (CASE) to comply with the newly harmonised Egyptian Accounting Standards (EASs) issued in 1997 and that are close to the international accounting standards (IASs). Although having an international audit firm is the dominant factor associated with disclosure and measurement/presentation compliance, ownership concentration, share trading, size as measured by market capitalisation and internationality are also associated with compliance. However, the results show that profitability, liquidity and leverage do not seem to affect the extent of compliance with EASs and the performance of manufacturing are at par with non-manufacturing firms. Also the performance of private sector firms is at par with public sector firms. This may indirectly imply that the positive accounting perspective may not be entirely applicable for de facto compliance in Egypt. Hence, it cannot be entirely inferred that listed Egyptian companies may use de facto compliance with EASs as a means of reducing agency costs, raising capital, reducing political costs or signalling to the market that they are high quality firms.

Adoption of and compliance with IFRS in developing countries

Purpose – The purpose of this paper is to review a synthesis of theories and empirical studies dealing with the adoption of and compliance with IFRS in developing countries in an attempt to provide directions for future research. Design/methodology/approach – The review focusses on four main streams including: first, the motives for IFRS adoption; second, corporate characteristics and the degree of compliance with IFRS; third, the economic consequences of IFRS adoption and finally; fourth, the use of regulation as an enforcement mechanism to monitor compliance with IFRS. The authors review empirical studies specifically devoted to developing countries. Findings – Regarding the first stream relating to IFRS adoption, the macroeconomic decision of adopting IFRS in developing countries can be justified by two main theories which are: the economic theory of network (Katz and Shapiro, 1985) and isomorphism (DiMaggio and Powell, 1991), however, empirical evidence in developing countries to confirm these theorie...

Audit committee activity and internal control quality in Egypt: Does external auditor’s size matter?

Purpose - – The purpose of this paper is to examine the association between audit committee activity, external auditor’s size and internal control quality (ICQ) in the Egyptian setting. It also explores how external auditor’s size moderates the relationship between audit committee activity and ICQ. Design/methodology/approach - – To obtain relevant information about ICQ in Egypt, the authors conducted a survey among external auditors using an internal control checklist. Findings - – Results show that audit committee activity has a significant positive effect on ICQ. In addition, Big 4 auditors contribute significantly to the improvement of the ICQ in the Egyptian setting. Finally, the association between audit committee activity and ICQ is more pronounced when an organisation is audited by a Big 4 audit firm. Originality/value - – The results this paper demonstrate that Big 4 auditors play a governance role in weak legal environment as exists in Egypt by strengthening the effectiveness of audit committee meetings. The findings also have policy implications for Egyptian standard-setters and other emerging economies characterised by an under-developed and poorly regulated audit market, with respect to the development of internal auditing standards.

Disclosure, ownership structure, earnings announcement lag and cost of equity capital in emerging markets: The case of the Egyptian stock exchange

Purpose - – The purpose of this paper is to examine the effect of voluntary disclosure, ownership structure attributes and timely disclosure on cost of equity capital in the emerging Egyptian capital market. Design/methodology/approach - – A content analysis of annual reports is used to measure the extent of voluntary disclosure. Earnings announcement lag (EAL) is used to measure the quality of voluntary disclosure (i.e. timely disclosure). Finally, the Capital Asset Pricing Model (CAPM) framework is used to estimate cost of equity capital. Findings - – The authors find a negative relationship between the level of voluntary disclosure and cost of equity capital. More specifically, the authors document that this association is strongly significant under high ownership dispersion, low government ownership and shorter EAL. Finally, EAL is positively associated with cost of equity capital. Research limitations/implications - – The authors use the CAPM framework as a proxy for the cost of equity since forecasted earnings per share are not communicated by financial analysts in the Egyptian Stock Exchange. Practical implications - – The findings demonstrate for managers that the increased levels of voluntary and timely disclosure reduce the cost of external finance and improve the marketability of firms’ equities, which may directly impact growth opportunities especially when information is communicated to investors in a timely fashion. For regulators, it provides evidence that high government ownership reduces the value relevance of voluntary disclosure among investors, while free float as a proxy for high ownership dispersion improves it. Originality/value - – The findings show that corporate disclosure policy depends more on the managers’ incentives to provide informative annual reports than on standards and regulations. The study also represents a first attempt that demonstrates how ownership structure and timely disclosure influence the relationship between disclosure and cost of equity capital.

Internal Control Quality, Disclosure and Cost of Equity Capital: The Case of an Unregulated Market

This paper examines the direct effect of internal control quality (ICQ) on cost of equity capital and whether the former has a moderating effect on the association between voluntary disclosure and cost of equity capital in an emerging market (Egypt). ICQ is measured using a survey of external auditors. A content analysis approach is used to proxy for the level of voluntary disclosure in annual. Finally, the Capital Asset Pricing Model (CAPM) framework is used to estimate cost of equity capital. Based on a sample of 256 firm-year observations over the period of 2007-2010, we find that ICQ is negatively and significantly associated with cost of equity capital indicating that better controls reduce cost of capital. In addition, ICQ moderates the association between voluntary disclosure and cost of equity capital since this association is only negative and significant for companies characterized by high ICQ. Our study contributes to the internal control literature by focusing on an emergent unregulated market with respect to internal control disclosure and documents that ICQ plays an important role in reducing cost of equity capital (either directly or indirectly) by increasing the value relevance of voluntary disclosure among investors on the Egyptian stock exchange.

Audit-related attributes, regulatory reforms and timely disclosure: Further evidence from an emerging market

Purpose This paper examines the impact of audit-related attributes and regulatory reforms on timely disclosure as proxied by audit report lag (ARL) in an emerging market setting, namely Egypt. Design/methodology/approach We use a balanced panel data of 372 firm-years observations of the most actively traded companies on the Egyptian Stock Exchange (EGX) over the period from 2007 to 2010. The study measures the dependent variable of ARL as the number of days between the clients fiscal year-end and the audit report. Findings Multivariate analysis indicates that audit committee activity (proxy for regulatory reforms) and external auditor type (proxy for audir-related attributes) contribute significantly to the reduction of ARL and increase disclosure timeliness. Furthermore, we find that ARL witnessed a slight decrease following the adoption of the new Egyptian Standards on Auditing (ESA). Finally, our findings show that industry types moderate the relationship between ARL and several audit-related variable...