Effect of Corporate Disclosure on Earnings Management Among Listed Firms at the Uganda Securities Exchange

Abstract

The primary purpose of this study was to empirically examine the effect of corporate disclosure on earnings management among listed firms at the Uganda Securities Exchange.The study consists of five main objectives covering: effect of mandatory disclosure of IAS/IFRS on earnings management among listed firms at the Uganda Securities Exchange; effect of strategic information disclosure on earnings management among listed firms at the Uganda Securities Exchange; effect of financial information disclosure on earnings management among listed firms at the Uganda Securities Exchange; effect of forward-looking information disclosure on earnings management among listed firms at the Uganda Securities Exchange; and, the moderating effect of corporate governance mechanisms on the relationship between corporate disclosure and earnings management among listed firms at the Uganda Securities Exchange. The research design of the study consists of two parts. First and in accordance with prior empirical disclosure research, corporate disclosure is examined using a disclosure index. Second, earnings management represented by the absolute value of discretionary accruals is measured using the modified Jones Model. The study provides several interesting findings. With regard to the first objective, the panel robust regression results revealed that mandatory disclosure of IAS/IFRS has a positive but insignificant effect on earnings management. In line with the second objective, strategic information disclosure was found to have a negative significant effect on earnings management. With regard to the third objective, financial information disclosure was found to have a positive and insignificant effect on earnings management. Similarly and in line with the fourth objective, forward-looking information disclosure was also found to have a positive but insignificant effect on earnings management. With respect to the fifth objective, the results of robust regression showed that audit committee characteristics have a negative significant moderating effect on the relationship between corporate disclosure and earnings managemet. This result perhaps provides support to an emerging trend of the outperformance of internal corporate governance mechanisms over corporate disclosure in lessening earnings management. Overall, the lack of clarity and the mixed relationships provided, shows that the association between corporate disclosure and earnings management is complex and dynamic.The study contributes to the body of knowledge by shedding light on the relationship between corporate disclosure and earnings management. It also provides new evidence on the moderating effect of corporate governance mechanisms on the relationship between corporate disclosure and earnings management, in the context of a developing country. The study recommends a test of the effect of corporate disclosure on the different aspects of earnings management to cover both financial and non-financial firms at not only the USE, but also the East African Securities Exchange.