The effect of multiple directorships on real and accrual-based earnings management: evidence from Saudi listed firms

Purpose - The study examines the effect of multiple directorships on accrual-based earnings management and real earnings management. It analyses whether earnings management practices in the Saudi context increase or decrease with the average number of multiple directorships.

Design/methodology/approach – The study uses Roychowdhury (2006)’s approach to capture the level of real earnings management and employs Jones (1991)’s cross-sectional model to measure accrual-based earnings management.

Findings – The paper provides partial evidence supporting the “busyness” hypothesis where earnings management practices increase with the number of multiple directorships. The evidence shows that multiple directorships have a positive and significant effect on real earnings management in the Kingdom of Saudi Arabia. However, we find no significant impact of multiple directorships on accrual-based earnings management.

Originality/value – This is the first study that empirically investigates the relationship between multiple directorships and earnings management in the Kingdom of Saudi Arabia. The paper contributes to the limited literature on multiple directorships in developing countries by examining their impact on opportunistic real earnings management.