Do CEO duality and expertise affect earnings management behavior? The moderating effect of family ownership

Abstract

Purpose This study aims to analyze whether chief executive officer (CEO) duality and financial expertise are associated with earnings management to exceed thresholds. It also investigates to what extent and in what direction this association evolves when family ownership is introduced as a moderator variable. Design/methodology/approach Based on balanced panel data related to companies listed on the Tunis Stock Exchange, this study uses the logistic random-effect model to test research hypotheses during the period spanning from 2016 to 2021. Findings The results show that CEOs with financial expertise are less inclined to engage in earnings management to avoid reporting losses and earnings decline. The authors also provide evidence that CEO duality allows top management to be more powerful and, therefore, manage earnings to report positive profits and sustain recent performance. Furthermore, the authors find that family ownership moderates the association between CEO financial expertise, CEO duality and earnings management to exceed thresholds. Practical implications The findings suggest to regulators involved in corporate governance and earnings management issues a reflection on CEO duality power, board effectiveness and family control. The study results are also of interest to auditors and board members as they provide a more in-depth understanding of the impact of CEOs' attributes and family control on financial reporting decisions. Originality/value This study extends past literature by providing new insights into the effect of CEO attributes and family control on earnings management practices in weak investor protection countries such as Tunisia.