Abstract:
Purpose: This research demonstrates the impact of board characteristics on the
cost stickiness of companies in various Egyptian industries, and how the
earnings management perspective will increase the cost stickiness through
managerial decisions that are mainly directed to reflect a better estimate for
their firm' performance and earnings by adjusting resources costs.
Design/methodology/approach: The ordinary least squares (OLS) used to in-
vestigate the behavior of selling, general and administrative cost, and the
influence of board characteristics (corporate governance mechanisms:
board size, board independence, and CEO duality) to reduce cost sticki-
ness using earnings management as an intermediary variable and firm size
and financial performance as control variables in a sample of 41 Egyptian
active publicly traded companies. Data is obtained from the financial
statements published between 2015-2019 and the multiple linear regres-
sion equations utilized to analyze the data; the board characteristics varia-
bles are identified from the section of governance in the annual reports.Findings: Findings indicate that corporate governance has a control ability over
the board of directors, which in turn has an inverse effect on cost stickiness
which tends to increase if management is willing to disclose optimistic
earnings forecast about firm’ future performance. The board independ-
ence, large board size, and the absence of CEO duality have a positive im-
pact on the efficient monitoring and reduction of earnings management.
The statistical results showed that effective corporate governance can re-
duce cost stickiness, as well as its strong effect on mitigating earnings man-
agement.
Research limitations/implications: The main limitation of the research is that
it covers only five years of annual financial reports in testing the hypothe-
ses. In addition, the authors used only four proxies for the board character-
istics (corporate governance mechanisms: board size, board independence,
and CEO duality).
Originality: The research's main contribution is to be among the few papers
that test the cost stickiness in Egypt as an emerging economy concerning
the board characteristics through taking into consideration the earnings
management effect as a mediating variable.
