Corporate governance and investors' perceptions of earnings quality: Egyptian perspective

Purpose - The purpose of this paper is to test whether corporate governance mechanisms promoted by the Egypt Code of Corporate Governance are effective in enhancing investors' perceptions of earnings quality. Design/methodology/approach - The study uses a 2 x 2 experimental design with a strong level of corporate governance versus a weak level of corporate governance to explore the relation between corporate governance practices and the perceived quality of reported earnings. Findings - The findings of the study reveal that strong corporate governance is associated with higher perceptions of earnings quality than weak corporate governance. These results suggest that the voluntary adoption of the Egypt Code of Corporate Governance by Egyptian firms enhances the investors' perceptions of the quality of the financial reporting process. Research limitations/implications - The results of the study should be considered by regulators in Egypt with regard to the Egypt Code of Corporate Governance, which was issued in October 2005. However, owing to the relatively small sample size, these findings should be interpreted with caution. Originality/value - This study contributes to the limited body of research on the impact of corporate governance on investors' perceptions of earnings quality by examining this impact in Egypt, where corporate governance is still not mandatory.