Audit committee financial expertise and real earnings management via accretive repurchases: does CEO power matter?

Abstract

Abstract This study investigates the association between audit committees’ (ACs) financial expertise and the implementation of accretive repurchases as a strategic method for real earnings management (REM). The study also examines empirical data about the influence of powerful Chief Executive Officers (CEOs) on the linkage between AC financial expertise and REM through accretive repurchase. A comprehensive analysis was performed on the dataset from a representative sample of 391 publicly traded Malaysian companies actively participating in accretive repurchases between 2014 and 2019. The research discovered a negative association between the level of financial proficiency exhibited by the ACs and the degree to which accretive repurchases are performed. The finding also shows a negative moderating impact of CEO authority on the connection between the financial competence of the AC and accretive repurchase practices. The results emphasise the need for financial competence inside the AC to guarantee effective oversight. However, the effectiveness of this specialised expertise appears to diminish in scenarios where a CEO possesses significant decision-making power. This indicates that AC members with financial experience are compromised in the presence of a powerful CEO. The findings carry significant ramifications, specifically for major stakeholders and governing entities in emerging economies. The significance of implementing strong corporate governance practices is emphasised to mitigate the adverse effects of dominant CEOs on monitoring functions of the ACs.s