Audit committee characteristics and accounting conservatism: does the power of people matter

Abstract

This study employs the developmental democracy theory to predict that the 2011 Egyptian Revolution created a demand for a better governance structure in the form of efficient audit committees, which led to increased conservative financial reporting. Using a sample of 605 firm-year observations from the 100 most active companies listed on the Egyptian stock market between 2009 and 2019, the study examines the effect of five audit committee characteristics on accounting conservatism post-Egyptian Revolution. The empirical results show that audit committee financial expertise, diligence, and interlock are positively associated with accounting conservatism, while audit committee size is negatively associated. Moreover, the 2011 Egyptian Revolution amplified the influence of audit committee characteristics on the timeliness of economic loss recognition, further promoting conservative financial reporting. This study is among the first to explore the moderating effect of the 2011 Egyptian Revolution on the relationship between audit committee characteristics and accounting conservatism.