Corporate Governance and Earnings Management in Banking Sector: Empirical Evidence from Palestine رسالة ماجستير

Abstract

Corporate governance involves a set of relationships between a company's management, its board, its shareholders, and other stakeholders. It also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Earnings management has been attributed to the lack of such good corporate governance practices. This study focuses on the relationship between corporate governance indicators and earnings management. Good corporate governance practices are significant in achieving the objectives of financial institutions and in enhancing investors’ confidence. In this study, the parallel data was collected through the annual reports of the seven Palestinian banks listed on the Palestine Stock Exchange for the years from 2013 to 2022, which include the banks financial performance reports. The independent variables (CG characteristics) are Ownership concentration, BOD size, internal audit function, number of BOD meetings, independence of BOD, and BOD foreign representatives. Additionally, Islamic banks and female representatives need to be taken into consideration as control factors. The dependent variable in this study is the earning management which is estimated by the method of modified Jones Model. The study concludes that foreign representatives, the independency of BOD, and BOD size in Palestinian banks lowers the earning management. On the other side, the study finds that there is negative correlation between number of BOD Meetings, the number of members in audit committee, and ownership concertation in Palestinian banks and the earning management. The study suggests several recommendations. Such as, independent directors should possess appropriate knowledge and align their interests with the bank's long-term success. Strong internal controls and risk management frameworks are vital, alongside VI transparent reporting processes. Employee compensation schemes should incentivize long-term performance and ethical behavior. Transparent discussions about board decisions and financial reports are essential, along with regular communication with shareholders and stakeholders regarding ownership structures and conflicts of interest.