Journal of Accounting in Emerging Economies

Board characteristics, external auditing quality and earnings management : Evidence

from the Tunisian banks
Neila Boulila Taktak, Ibtissem Mbarki,
Article information:
To cite this document:
Neila Boulila Taktak, Ibtissem Mbarki, (2014) "Board characteristics, external auditing quality and earnings
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

management: Evidence from the Tunisian banks", Journal of Accounting in Emerging Economies, Vol. 4
Issue: 1, pp.79-96, https://doi.org/10.1108/JAEE-10-2011-0046
Permanent link to this document:
https://doi.org/10.1108/JAEE-10-2011-0046
Downloaded on: 19 February 2019, At: 06:57 (PT)
References: this document contains references to 60 other documents.
To copy this document: permissions@emeraldinsight.com
The fulltext of this document has been downloaded 1211 times since 2014*
Users who downloaded this article also downloaded:
(2016),"Effective audit committee, audit quality and earnings management: Evidence from Tunisia",
Journal of Accounting in Emerging Economies, Vol. 6 Iss 2 pp. 138-155 <a href="https://doi.org/10.1108/
JAEE-09-2013-0048">https://doi.org/10.1108/JAEE-09-2013-0048</a>
(2016),"Audit committee effectiveness, audit quality and earnings management: a meta-analysis",
International Journal of Law and Management, Vol. 58 Iss 2 pp. 179-196 <a href="https://doi.org/10.1108/
IJLMA-01-2015-0006">https://doi.org/10.1108/IJLMA-01-2015-0006</a>

Access to this document was granted through an Emerald subscription provided by emerald-srm:551360 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald for
Authors service information about how to choose which publication to write for and submission guidelines
are available for all. Please visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company
manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as
providing an extensive range of online products and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee
on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive
preservation.

*Related content and download information correct at time of download.

 The current issue and full text archive of this journal is available at
www.emeraldinsight.com/2042-1168.htm

External
Board characteristics, external auditing
auditing quality and quality
earnings management
Evidence from the Tunisian banks 79
Neila Boulila Taktak and Ibtissem Mbarki
Unité de recherche DEFI – ESSECT,
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

Ecole Supérieure de Sciences Economiques et Commerciales de Tunis,

Tunis, Tunisia

Abstract
Purpose – The purpose of this paper is to examine the impact of board characteristics and external
audit quality on earnings management among major Tunisian banks over the period 2003-2007.
Design/methodology/approach – Multivariate regressions are employed to test the effect of board
structure and external audit quality on discretionary provisions as a proxy for earnings management.
Findings – Results indicate that among the characteristics of the board, CEO duality is associated
with higher levels of discretionary provisions. However, the presence of directors affiliated to the
largest shareholder tends to constrain earnings management practices. The results reveal also that
a co-audit belonging to the BIG 4 provides incentives to manage earnings while the capacity of the
external auditor to disclose reservations impacts negatively the manager’s discretion.
Practical implications – First, it is not desirable to appoint a co-audit both belonging to the BIG 4.
Second, the presence of affiliated directors reduces the discretionary practices except in cases where
directors are affiliated to families. In this case, banks should strengthen the presence of independent
directors. Finally, the delineation of the leeway left in the Tunisian accounting standards would
provide more transparent financial information.
Originality/value – This study contributes to the literature on governance and its impact on
earnings management among Tunisian banks by introducing two variables that have not been tested
before which are affiliated directors and co-audit. The paper will be of value to banks willing to comply
with the Governance Good Practice Guide adopted recently in Tunisia.
Keywords Earnings management, Governance, Banks, Tunisia, Affiliated directors, Co-audit
Paper type Research paper

1. Introduction
Tunisia is the first emerging economy from MENA region which has adopted a series
of reforms in order to liberalize, modernize and adapt the financial sector to the
international standards (adoption of Basel accord in 1999, universal banking model in
July 2001, enhancing the financial security in 2006). Given these changes, Tunisian banks
are increasingly forced to provide better performance. However, the non-performing
loans (NPL) ratio and loan loss allowances remain below the targets set by the Tunisian
Central Bank. The overall provisioning rate averaged about 54 percent in 2006, far below
the target level of 70 percent recommended by the International Monetary Fund (IMF).
These efforts are still offset by the leeway offered by accounting and prudential rules for
bank managers in the assessment of the credit quality. Journal of Accounting in Emerging
In this context, it would be appropriate to examine the capacity of governance Economies
Vol. 4 No. 1, 2014
systems to minimize opportunistic behavior of some managers. This recognition of the pp. 79-96
r Emerald Group Publishing Limited
usefulness of governance in the delimitation of discretionary behaviors within 2042-1168
Tunisian firms has led to the adoption of the Governance Good Practice Guide. DOI 10.1108/JAEE-10-2011-0046
 JAEE The objective of this research is to study the impact of governance mechanisms
4,1 on the discretionary[1] practices of loan loss provisions of the major Tunisian banks
over the period (2003-2007). The results show that affiliated directors to the first
shareholder, which is the main feature of the board, affects significantly the
discretionary provisions. Particularly, it seems that affiliated directors to the State and
institutions reduce the discretionary provisions compared to directors affiliated to the
80 same family members. The results show also that a dual auditors belonging to the BIG
4 increases the discretionary provisions, while the capacity of the external auditor to
disclose reservations impacts negatively the manager’s discretion.
The rest of the paper is structured as follows. The second section reviews literature
that links the characteristics of the board and the quality of external audit to earnings
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

management, after which the hypotheses to be tested are developed. The third section
presents the methodology used. Empirical results and discussion are presented in the
fourth section. The fifth section summarizes the main conclusions.

2. Literature review and hypotheses

2.1 Characteristics of the board
2.1.1 Size. Several studies have focussed on studying the effect of the board size on
earnings management. Proponents of agency theory suggest that a large board
promotes conflicts of interest between manager and shareholders, mainly because of
difficulties of coordination and communication that may hinder consensus decisions
( Jensen, 1993; Bushman et al., 2004; Kao and Chen, 2004). This allows the manager to
dominate the directors and use its managerial discretion to maximize his wealth
through the earnings management (Lipton and Lorsch, 1992; Abdul Rahman and
Mohamed Ali, 2006). Contrariwise, other authors support the hypothesis that a large
board of directors reduces earnings management because such board usually allows
getting profit from the various experiences of the different partners and board
members (Xie et al., 2003; Peasnell et al., 2005). This pattern is derived from the
resource dependence theory, which assumes that in an environment marked by
considerable uncertainty, an expanded board of directors is an effective tool for
decision making as it allows benefiting from the specific knowledge of the various
directors ( Jian and Ken, 2004). In Tunisian banks, Omri et al. (2007) found that a large
board of directors increases earnings management over the period (1998-2006).
Finally, other studies estimate that the board size depends on a tradeoff between the
benefits of expertise related to the diversity provided by a large board and the benefits
of efficiency and control provided by a restricted board (Andres and Vallelado, 2008).
This principle of arbitration between efficiency and diversity is one of the main
preoccupations in Tunisian companies.
Thus, the Governance Good Practice Guide for Tunisian firms (2008)[2]
recommends that firms should have “a board small enough to facilitate rapid
decision making and as wide as possible to get profit from the richness and diversity of
skills and experiences of its members.” In this case, we cannot make a prediction of the
sign of size variable. So our first hypothesis is as follows:

H1. There is a relationship between the board size and discretionary provisions.

2.1.2 CEO duality. Proponents of agency theory argue for the separation between
CEO and chairman roles in a board of directors. Fama and Jensen (1983) stipulate that
the separation of management and control functions enhances the effectiveness of the
 board decisions and reduces agency costs. In fact, the combination of these functions External
increases the manager’s authority by allowing him to satisfy his own interests over auditing
those of shareholders ( Jensen, 1993; Epps and Ismail, 2009). Splitting the roles of
chairman and CEO is also favorable to make the board more independent (Coombes quality
and Wong, 2004). Proponents of stewardship theory, in contrast, argue that CEO
duality enhances the firm’s performance as it avoids power dilution, reduces rivalry
and provides more clarity in the business conduct (Bradbury et al., 2006). In addition, 81
CEO duality facilitates decision making with a minimum board interference (Reshner
and Dalton, 1991; Lin, 2005).
Regarding the banking context, the results of previous studies addressing the
impact of this feature on earnings management are mixed. Cornett et al. (2009) found
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

that the cumulative functions of management and control affects negatively earnings
management, particularly the level of discretionary provisions, contrary to Brickley
et al. (1997) and Anuchitworawong (2004) who found that CEO duality increases the
provisions adjustment. On a sample of Tunisian banks, Omri et al. (2007) found that
the duality in the board appears to increase earnings management only in the presence
of institutional directors.
The Governance Good Practice Guide for Tunisian firms (2008) recommends the
separation of management and control functions. It provides that “dissociation
promotes the right decisions, when the board decides the combination of the two
functions; it has to justify to shareholders the reasons for this choice.” So the sign of
CEO duality variable is expected to be positive. Hence, it is hypothesized that:

H2. There is a positive relationship between CEO duality and discretionary

provisions.

2.1.3 Affiliation of directors. Theoretically, the relationship between the presence of

affiliated directors in the board and its effectiveness is mixed. According to the agency
theory, the affiliated directors are cause of inefficiency or lack of control, because
they are usually appointed by the manager and seek to maximize their revenues.
Only independent directors can limit the manager discretionary practices
(Anuchitworawong, 2004). In addition, affiliated directors seek to privilege their
private interests to the detriment of minority shareholders (Anderson et al., 2003;
Schulze et al., 2003). On the other side, the resource dependence theory considers that
the presence of affiliated directors in the board is equivalent to efficiency. They are
more familiar with the specificities of the company and its environment, as they
maintain business relationships with it.
Empirical results confirm that independent directors are more likely to reduce
discretionary practices than affiliated ones. They can control and discipline more
effectively the discretionary behavior of managers (Klein, 2002; Jaggi et al., 2007). Such
directors are known by their expertise and their ability to judge independently and
objectively the firm performance (Booth and Deli, 1996). It should be noted, however,
that despite the high number of independent directors comprising the board of Enron,
it was ineffective in its mission of control (Healy and Palepu, 2003). In fact, many
studies failed to find a significant relationship between board independence and
earnings management (Park and Shin, 2004; Hashim and Devi, 2008).
The Tunisian system is characterized by the presence of strong blockholders often
including families. In fact, 80 percent of total shares are held by the five largest
shareholders (Omri, 2003), which explains the domination of affiliated directors in
 JAEE Tunisian boards against a weak presence of independent directors[3]. Outside directors
4,1 are usually appointed for expertise reasons rather than to save minority shareholders’
interests (Boudriga et al., 2011). In this regard, the Governance Good Practice Guide
encourages the Tunisian firms to appoint independent directors and recommends that
“at least one third of the board of directors must be independent.”
It should be noted that the relationship between affiliated directors and earnings
82 management has not been tested before in the Tunisian context. This brings us to issue a
non-directional hypothesis as we cannot make a prediction of affiliation variable’s sign:

H3. There is a relationship between affiliated directors and discretionary provisions.

Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

2.1.4 Nature of directors. The ownership structure of a company often reflects the
composition of his board, which allows us to distinguish several types of directors:
State, foreigner and institutional.
Institutional directors. Theoretical studies dealing with the impact of the presence
of institutional directors (who are usually representatives of banks or insurances) on
the limitation of managers discretions report controversial points of view. Some
authors argue that their presence improves the efficiency of governance as they have
better access to information and greater expertise in achieving performance ( Jensen,
1993). In contrast, other studies found that the presence of institutional directors has no
effect on the discipline of the opportunistic behavior of managers (Paquerot, 1997).
Empirically, the disciplinary authority of these institutions is generally tested
according to their participation in the capital. If the share is low, institutional
investors[4] are more interested in maximizing their income in the short term, which
make them less motivated to control managers. They may even encourage executives
to manage their results (Lang and McNichols, 1999). Contrariwise, if the share is high,
these directors will instead seek to maximize the long-term value of the bank. As a
consequence, they will be more incited to monitor the managers’ behavior.
The exam of the ownership structure of the Tunisian banks over the period
1998-2007 reveals that it is almost the same institutions that hold bank capital, which
might suggest a negative relationship between institutional directors and discretionary
provisions. In this case, the sign of this variable is expected to be negative:

H4-1. There is a negative relationship between the presence of institutional

directors in the board and discretionary provisions.

Foreign directors. The governance of banks by foreigners has been a subject of

a limited number of studies (Beck and Levine, 2004), which show that banks with a
high-foreign ownership have better access to capital markets and a greater capacity to
diversify their risks. Moreover, such banks have better access to the best governance
practices compared to local ones. Therefore, the presence of foreign directors ensures
the independence of the board and limits the manager’s opportunistic behavior. The
sign of this variable is expected to be negative:

H4-2. There is a negative relationship between the presence of foreign directors in

the board and discretionary provisions.

State directors. Most studies confirm that banks owned by the State suffer from a lack
of effectiveness and efficiency (La Porta et al., 2002). Such banks are generally
 characterized by a high level of NPL, a weak competition and a lack of private External
supervision mechanisms (Barth et al., 2004). Therefore, compared to their private auditing
counterparts, they present to managers a propitious field to manage their results
(Beatty et al., 2002). According to the agency theory, banks owned by the State are less quality
exposed than private ones to the disciplinary effect of financial market. Therefore,
opportunistic behaviors of managers are promoted. In this case, the sign of this
variable is expected to be positive: 83
H4-3. There is a positive relationship between the presence of State directors in the
board and discretionary provisions.
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

2.2 Characteristics of the external audit

External auditing is another governance mechanism that can restrict the managerial
discretionary practices. Based on the agency theory, an external audit reduces the
information asymmetry between the principal and the agent and minimizes conflicts
of interest (Watts and Zimmerman, 1983). According to the literature, the quality of
external audit is measured by the reputation of the auditor, his ability to disclose
reservations and the presence of a co-audit.
2.2.1 Auditor’s reputation. Several studies have examined the relationship between
earnings management and auditor’s reputation, generally measured by its membership
in “Big 4[5]” group (De Angelo, 1981). According to Rusmin (2010), BIG 4 audit firms
have more capital, human resources, technology and experiences which enable them to
provide higher quality audit. Furthermore, they typically have a large client base and
internationally recognized brand names, thus they have more incentive to maintain
higher quality audits.
The hypothesis related to the existence of a negative relationship between earnings
management and the auditor’s reputation has been validated only in the American
context, characterized by a significant legal risk (Becker et al., 1998). However, other
studies conducted in other contexts invalidate the relevance of the auditor’s reputation
in limiting earnings management (Piot, 2001; Kabir et al., 2011). In fact, since the
bankruptcy of Enron the reputation of these networks has been called into question. So
the sign of auditor’s reputation variable is expected to be negative:

H5. There is a negative relationship between the external auditor reputation and
discretionary provisions.

2.2.2 Disclosure of reservations. De Angelo (1981) defines the quality of external audit
as “the assessment by the market of the joint probability that an auditor discovers
simultaneously a significant anomaly in the accounting system of the company and
publishes this anomaly or this irregularity.” This definition highlights two
fundamental aspects of external audit quality: the technical competence of the
auditor represented by its ability to detect errors in the annual reports and his
independence codified through revelation quality[6] (Lennox, 1999). Such
characteristics are essential for the delimitation of earnings management practices
(Datar et al., 1991). So the sign of this variable is expected to be negative:

H6. There is a negative relationship between the disclosure of reservations and

discretionary provisions.
 JAEE 2.2.3 Co-audit. The co-audit is a specificity of the French law that allows companies to
4,1 ensure the independence of the auditor in expressing his opinion as many pressures
may be exercised in the case of one auditor. Or, the manager cannot corrupt the two
auditors at the same time (Ebondo Wa Mandzilla, 2006). Piot and Janin (2007) suggest
that the co-audit provides two main advantages. In one hand, it offers the possibility of
a reciprocal control of the auditor’s procedures which allows the comparison of the
84 auditors’ opinions. On the other hand, it strengthens the independence of each of them,
limiting any potential domination of the auditees. The co-audit can then enhance the
audit quality and therefore the reliability of financial reporting (Nôel et al., 2009).
However, its main limitation lies in the asymmetry of information that links the two
auditors, which could affect the distribution of work between them. In fact, “Sometimes
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

a BIG 4 is co-auditor with a small firm of audit. The latter lacks the same technical and
physical skills that are available to the BIG4. Consequently, the distribution can go up
to a ratio of 20/80 between the two auditors, see 0/100. The asymmetry in the size of
audit firms causes an imbalance of power relations between the two auditors that leads
to the dependence of one to the other” (Bennecib, 2004). In fact, when an auditor BIG
shares a co-audit mandate with a no BIG auditor, it gets usually benefit from such
situation to allocate the whole work to their advantage to preserve their reputation in
case of problem. The sign of co-audit variable is expected to be negative:

H7. There is a negative relationship between the co-audit and discretionary

provisions.

3. Methodology
3.1 Sample
This research uses individual annual data of the ten major Tunisian banks[7] which
represent about 90 percent of the aggregate outstanding loans. All these banks are
listed on Tunisia Stock Exchange.
Data on governance were collected manually from annual reports and banks web
sites covering a period of five years (2003-2007). The financial data used to estimate the
discretionary provisions were collected from BANKSCOPE database and banks’
annual reports over a period of ten years (1998-2007). Indeed, the period before 2003 is
essential to estimate the discretionary portion of provisions.

3.2 Variables measurement

3.2.1 Measurement of earnings management (dependent variable). We use the
discretionary provisions as a proxy of earnings management, measured by adopting
the methodology of Elleuch-Hamza and Boulila-Taktak (2009) which is strongly
inspired from Cornett et al. (2007). It consists of three steps.
. Step 1: estimation of the regression’s parameters
The first step consists on estimating the coefficients of the model that identifies the
normal part of provisions (model 1) on the estimation period (1998-2002). The model is
as follows:

LLPit =TCit1 ¼ b0 þ b1 NPLit =TCit1 þ b2 LLAit1 =TCit1

ð1Þ
þ b3 COLLit =TCit1 þ ULLPit
 where LLPit is the loan loss provisions of the bank i at date t; NPLit the NPL of the bank External
i at time t; LLAit1 the loan loss allowance of the bank i at date t1; COLLit the total auditing
collaterals received by the bank i at date t; TCit1, the total credit of the bank i at
time t1. All model variables are standardized by total credit (TCit1) to avoid quality
heteroscedasticity problem; ULLPit, the error term of the equation representing the
discretionary portion of LLP of bank i in period t [8].
. Step 2: estimation of the non-discretionary component of loan loss provisions 85
The estimated coefficients b0, b1, b2 and b3 of regression (1) are used to calculate the
predicted values of loan loss provisions (LLPNDit) over the period 2003-2007. This
component is calculated using the following equation:
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

LLPNDit =TCit1 ¼ b^0 þ b^1 NPLit =TCit1 þ b^2 LLAit1 =TCit1

ð2Þ
þ b^3 COLLit =TCit1

. Step 3: estimation of the discretionary component of loan loss provisions

The last step consists on calculating the discretionary provisions (LLPD) given as the
difference between the actual amount of loan loss provisions (LLP ) and the
non-discretionary portion of loan loss provisions estimated at the second stage (LLPND):
LLPDit ¼ LLPit  LLPNDit ð3Þ

3.2.2 Measurement of the independent variables. Two categories of independent

variables are tested in the paper. The first relates to the characteristics of the board
structure (size, duality, affiliation and nature of directors) and the second is interested
to the characteristics of the external audit quality (co-audit, BIG 4, disclosure of
reservations).
We also introduce in our model four control variables which can take into account
the practice of earnings management (SMOOTH ), management of capital (CAR ), size
(SIZE ) and the concentration of ownership (CONC ). Income smoothing is highlighted
by the positive relationship between net income before provisions and tax on one hand
and discretionary provisions on the other hand ( Jian and Ken, 2004). CAR variable is
often used to control for capital management practices. In fact, banks with capital
adequacy ratio below the required minimum will be incited to reduce their provisions
in order to maintain their CAR above the regulatory minimum (Kim and Kross, 1998;
Ahmed et al., 1999). In the Tunisian regulatory framework, loan loss reserves are
excluded from regulatory capital and they are not counted either as tier 1 or as tier 2
capital. The effect of the level of CAR on loan loss provisions is only considered,
indirectly, through net earnings (Boulila Taktak et al., 2010). The size variable is
introduced to take account of possible difference between large banks and those of
small size. In fact, according to Cornett et al. (2009) larger banks are the most likely
to be monitored by industry analysts. As a consequence, they will be less incited to
artificially increase income using discretionary accruals. Finally, we introduced the
concentration ownership variable (CONC) as the Tunisian system is characterized by
the presence of strong block holders including mainly state shareholders or families. In
fact, 80 percent of total shares are held by the five largest shareholders (Omri, 2003).
Table I presents measurements of variables and their expected signs.
 JAEE Expected
4,1 Variables Definitions signs

LLPD The discretionary loan loss provisions

Ln-BD Log of the number of directors on the board þ /
DUAL Binary variable equals to 1 if there is an overlapping of the functions of
chairman of the board and CEO and 0 otherwise þ
86 DAFFIL Binary variable equals to 1 if the percentage of affiliated directors to the
first shareholder on the board exceeds 50% and 0 otherwise þ /
DSTAT Percentage of State directors on the board þ
DINST Percentage of institutional directors on the board 
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

DFORG Percentage of foreign directors on the board 

Co-Audit Binary variable equals to 1 if the bank is audited by two auditors and
0 otherwise 
BIG4_0 Binary variable that takes 0 if the auditor does not belong to a BIG4 þ
BIG4_1 Binary variable that takes 1 if one of the two auditors belongs to a BIG4 
BIG4_2 Binary variable that takes 1 if the two auditors belong to a BIG4 
RESERV Binary variable equals to 1 if the auditor discloses at least one reservation
in its annual report, 0 otherwise 
SMOOTH Net income before tax and loan loss provisions reported to total assets þ
CAR Capital adequacy ratio (CAR) which is a measure of the amount of a bank’s
Table I. core capital expressed as a percentage of its risk-weighted asset 
Variables definition SIZE Log of total assets / þ
and expected signs CONC Percentage of the largest shareholder in the bank’s capital / þ

4. Results and discussion

4.1 Descriptive statistics
Table II shows that the average of the discretionary provisions is positive and
represents 0.43 percent of total loans, which proves that banks intentionally
underestimate provisions to manage upwards their results. This table shows also that
the number of directors in the board is ranged from eight to 12 with an average of 11,
against an average of seven for non-financial companies (Zéghal et al., 2006). It seems
then, that the boards of Tunisian banks are large since the average is closer to the
maximum limit of 12 directors prescribed by the regulation. Concerning directors
nature, results show that, on average, the proportion of State, foreign and institutional
directors is almost the same and varies from 25 to 28 percent.
Table III shows that in 64 percent of bank-year observations, the CEO combines
the function of chairman of the board, against only 36 percent of cases of non-duality.

Variables Mean Median Minimum Maximum SD

LLPD 0.0043 0.002 0.012 0.0780 0.015

BD 11 11 8 12 1.293
DFORG 25.57 23.61 0.00 66.67 24.58
Table II. DSTAT 25.81 0.00 0.00 100.00 36.35
Descriptive statistics of DINST 28 25.00 0.00 58.33 19.79
the dependent variable
and governance Notes: LLPD, discretionary loan loss provisions; BD, number of directors on the board; DFORG,
variables (continuous percentage of foreign directors on the board; DSTAT, percentage of State directors on the board;
variables) DINST, percentage of institutional directors on the board
 Variables Proportions (%)
External
auditing
DUAL 0 36 quality
1 64
DAFFIL 1 74
0 26
Co-Audit 0 52 87
1 48
BIG4 0 46
1 40
2 14
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

RESERV 0 33
1 66
Notes: DUAL, binary variable equals to 1 if there is an overlapping of the functions of chairman of the
board and CEO and 0 otherwise; DAFFIL, binary variable equals to 1 if the percentage of affiliated
directors to the first shareholder on the board exceeds 50 percent and 0 otherwise; Co-Audit, binary
variable equals to 1 if the bank is audited by two auditors and 0 otherwise; BIG4_0, binary variable
that takes 0 if the auditor does not belong to a BIG4; BIG4_1, binary variable that takes 1 if one of the Table III.
two auditors belongs to a BIG4; BIG4_2, binary variable that takes 1 if the two auditors belong to a Proportions of
BIG4; RESERVE, binary variable equals to 1 if the auditor discloses at least one reservation in its governance variables
annual report, 0 otherwise (qualitative variables)

This result shows that the two functions remain associated despite the enactment of a
new legislation in 2000 which provides the separation. Previous studies have shown
that duality is not specific to the Tunisian context; it is also expressed in US banks
where 80 percent of managers combine the two functions (Cornett et al., 2009). Table III
also shows that boards of Tunisian banks are mainly characterized by the presence of
affiliated directors with an average of 74 percent, which can influence the board
decisions. This result does not comply with the Governance Good Practice Guide
which recommends that firms should have a minimum of 1/3 of independent directors.
Regarding variables related to the quality of external auditing, it appears that
nearly the half of banks (52 percent) is audited by two auditors. This result shows the
voluntary adhesion of Tunisian banks to strengthen control since the requirement of a
double audit does not come into effect until 2007. Similarly, descriptive statistics show
that in 54 percent of cases, Tunisian banks are audited by an external auditor
belonging to one of the BIG 4 groups. Finally, the reservations revealed by the auditors
are about 66 percent over the study period.
Table IV, reporting the descriptive statistics of control variables, shows that the
average of the variable measuring earnings smoothing coincides with its median

Variables Mean Median Minimum Maximum SD

SMOOTH 0.017 0.017 0.004 0.037 0.008

CAR 10.406 10.400 1.800 19.870 4.054
CONC 45.97 52 5.61 69 17.93
SIZE 14.709 14.624 13.848 15.445 0.448
Notes: SMOOTH, net income before tax and loan loss provisions reported to total assets; CAR, Table IV.
capital adequacy ratio; CONC, percentage of the largest shareholder in the bank’s capital; SIZE, log of Descriptive statistics
total assets of control variables
 JAEE (representing 1.7 percent of total assets). The banks in the sample are sufficiently
4,1 capitalized (with an average of 10.4 percent), far surpassing the regulatory minimum
required of 8 percent. The table also reveals that the ownership structure is relatively
concentrated since the largest shareholder holds on average 46 percent of the capital
with a maximum of 69 percent.

88 4.2 Multivariate analysis and results interpretation

To test the effect of board characteristics and the quality of external audit on the
discretionary provisions, we have introduced variables related to the nature of directors
one by one to avoid problems of correlation and multicollinearity[9]. Similarly, to
address the endogeneity problem[10] that might exists between the characteristics of
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

the board and the quality of external audit, each category of variables was tested
separately in two different models as suggested by Bhagat and Jefferis (2002).
Accordingly, two regressions are estimated: first, LLPD ¼ f(board structure, control
variables) and second, LLPD ¼ f(external audit quality, control variables).
The estimation method used is the “Panel Corrected Standard Errors” (PCSE) which
can provide unbiased coefficients by correcting problems of autocorrelation and
heteroscedasticity in micro-panels (Beck and Katz, 1995, 1996). Indeed, based on
estimations of Monte Carlo, Beck and Katz (1995, 1996) show that the PCSE
specification provides a more reliable error structure than that produced by the method
of generalized least squares considered too confident.
Table V reports the results of the first model testing the effect of board
characteristics on earning management. It shows that combining the functions of
chairman and CEO increases significantly the discretionary provisions (panels 1, 2
and 3 of Table V) according to the agency theory perspective which supports interests

(1) (2) (3) (4)

LLPD LLPD LLPD LLPD

DUAL 0.00690*** (3.72) 0.00467* (1.65) 0.00457*** (3.68) 0.00372 (1.29)

Ln-BD 0.00500 (0.49) 0.00291 (0.25) 0.0104 (0.89) 0.00951 (1.01)
DAFFIL 0.0352*** (4.54) 0.0339*** (5.16) 0.0413*** (4.75) 0.0290*** (5.41)
DFORG 0.0129** (2.22)
DSTAT 0.00709 (1.62)
DINST 0.0209** (2.89)
SMOOTH 0.462** (2.52) 0.289* (1.88) 0.622*** (3.97) 0.282** (2.05)
CAR 0.00103** (2.34) 0.00132*** (3.99) 0.000429 (1.09) 0.00104** (2.65)
SIZE 0.00288 (1.59) 0.00923*** (4.18) 0.00705 (1.49) 0.0120*** (5.49)
CONC 0.000357*** (3.82) 0.000433*** (4.11) 0.000225** (2.24) 0.000415*** (4.23)
Constant 0.0435* (2.31) 0.148** (3.25) 0.0282134 (0.32) 0.1839176*** (2.35)
n 50 50 50 50
R2 66% 66.17% 68% 71%

Notes: LLPD, discretionary loan loss provisions; DUAL, binary variable equals to 1 if there is an overlapping of the
functions of chairman of the board and CEO and 0 otherwise; Ln-BD, log of the number of directors on the board;
Table V. DAFFIL, binary variable equals to 1 if the percentage of affiliated directors to the first shareholder on the board
Panel regression of the exceeds 50 percent and 0 otherwise; DFORG, percentage of foreign directors on the board; DSTAT, percentage of State
board characteristics directors on the board; DINST, percentage of institutional directors on the board; SMOOTH, net income before tax and
on discretionary loan loss provisions reported to total assets; CAR, capital adequacy ratio; SIZE, log of total assets; CONC, percentage
provisions of the largest shareholder in the bank’s capital. ***, **, *Significance at 1, 5 and 10 percent levels, respectively
 conflicts ( Jensen, 1993). However, duality does not impact the provisioning policy in External
the presence of institutional directors on the board (panel 4 of Table V). These findings auditing
support, on the one hand, the recommendations of the Governance Good Practice
Guide which is in favor of the separation of management and control functions. On the quality
other hand, they confirm the mixed results of earlier researches. Results also show
that whatever the specification used, boards dominated by affiliated directors affect
negatively the discretionary provisions because of the intensity of coalition between 89
the first shareholder who exercise the control (or officer of the bank) and directors. This
counter-intuitive result confirms the notion that boards dominated by such directors,
control and discipline more effectively discretionary behavior of managers ( Jian and
Ken, 2004; Cornett et al., 2009). Another plausible explanation for this result lies in the
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

fact that banks with a large number of affiliated directors are those least provisioned.
This is particularly about the two State banks (STB and BNA) and a private family
bank (Amen bank). These banks are required to increase their provisioning policy to
achieve the target of 70 percent by the end of 2009 required by IMF.
Regarding the nature of directors, results show that the presence of foreign and
institutional directors on the board reduces the discretionary practices. The first allows
banks to access to the best practices of governance through their knowledge and
expertise. The latter seek to maximize long-term value of the bank as they maintain a
substantial stake. On the other side, the results show that the board size has no effect
on the discretionary practices of Tunisian banks confirming the findings of Cornett
et al. (2009) on a sample of American banks.
Eventually, concerning the control variables, the coefficient associated with
(SMOOTH ) variable is positive and significant, which emphasizes the practice of
earnings management through provisions in Tunisian banks (Boulila Taktak, 2008).
The capital adequacy ratio has a significant and negative impact on discretionary
provisions. The highly capitalized banks are those that handle to lower the
discretionary provisions (Dewatripont and Tirole, 1994). Finally, results also show the
variable (CONC ) is significant and positive in all specifications showing that banks
which are heavily concentrated are those that manipulate the most their provisions.
Table VI presents the results regarding the effect of the external audit’s quality on
discretionary provisions. It shows that the more auditors disclose reservations about
the reliability of financial information conveyed through the financial statements of the
bank, the more the intention to manipulate provisions declines. This result highlights
how much it is important that the external auditor must maintain its independence
toward his client (Lennox, 1999). Indeed, the ability of revelation is essential to limit
earnings management in banks. Another result that seems very interesting is the
positive effect associated with the variable Co-Audit. This result interpellates the
usefulness of the implementation of the new law on financial security that provides
increased control through the appointment of two auditors. Moreover, the affiliation
between two BIG 4 auditors increases accounting manipulations. The co-audit is
working properly only in the presence of a single member belonging to the BIG 4. This
result is consistent with researches conducted in European countries (Piot, 2001;
Vander Bauwhede, 2005) and contradicts the conclusions of the Anglo-Saxon studies
(Becker et al., 1998), supporting the theory of “deep pockets” developed by De Angelo
(1981). According to this view, only large firms are able to compensate for any losses
caused by an incorrect certification because of the significant financial resources at
their disposal. Indeed, the ineffectiveness of BIG 4 auditors in the reliability of
accounting data seem to be attributed to the fragility of the legal and discipline system
 JAEE (1) (2) (3)
4,1 LLPD LLPD LLPD

RESERV 0.00807*** (3.55) 0.00730*** (3.35) 0.00648*** (3.59)

Co-Audit 0.00407** (2.35)
BIG4_1 0.000574 (0.20)
90 BIG4_2 0.0135*** (4.29)
SMOOTH 0.166 (1.18) 0.102 (0.70) 0.190 (1.45)
CAR 0.00218*** (4.57) 0.00209*** (4.09) 0.00191*** (4.29)
SIZE 0.00666** (2.26) 0.00557* (1.89) 0.00530* (1.89)
CONC 0.0000275 (0.61) 0.00000838 (0.23) 0.0000633 (1.34)
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

Constant 0.253614** (2.94) 0.115** (2.58) 0.2219685** (2.70)

n 50 50 50
R2 51% 48% 51%
Notes: LLPD, discretionary loan loss provisions; RESERVE, binary variable equals to 1 if the auditor
discloses at least one reservation in its annual report, 0 otherwise; Co-Audit, binary variable equals to 1
Table VI. if the bank is audited by two auditors and 0 otherwise; BIG4_1, binary variable that takes 1 if one of
Panel regression of the the two auditors belongs to a BIG4; BIG4_2, binary variable that takes 1 if the two auditors belong to a
external audit quality BIG4; SMOOTH, net income before tax and loan loss provisions reported to total assets; CAR, capital
on discretionary adequacy ratio; SIZE, log of total assets; CONC, percentage of the largest shareholder in the bank’s
provisions capital. ***, **, *Significance at 1, 5 and 10 percent levels, respectively

of auditors in Tunisia. The civil and criminal liability of auditors is much less
pronounced in the Tunisian context than in the USA.

4.3 Discussion and policy implications

The results of the previous regressions showed that among the characteristics of
the board, the presence of affiliated directors (DAFFIL) impacts negatively and
significantly the discretionary provisions. This result, which we thought, a priori,
counter-intuitive, led us to run further investigations by distinguishing between
different categories of affiliated. We consider four types of affiliation: AFFILSTAT if
the directors on the board are affiliated with the largest shareholder who is the State;
AFFIFORG if the directors on the board are affiliated with the largest shareholder
who is foreign; AFFILINST if the directors on the board are affiliated with the largest
shareholder who is institutional and finally AFFILFAM if the directors affiliated to
the largest shareholder are mainly members of the same family. The results reported
in Table VII show that the effect of affiliation variable changes depending on its
nature. In fact, for directors affiliated to State and institutions, the effect is
still negative and significant. Their presence reduces the discretionary portion
of provisions; this is explained by the fact that these banks are characterized by
the lowest provisioning rate in the industry. So, they have interest to reduce
manipulation to achieve the provisioning target of 70 percent. However, if the
directors are affiliated with a leading shareholder composed of the same family
members, the manager manipulate upward the reserves primarily to lower income
and therefore to distribute lower dividends.
By controlling the nature of affiliation, the coefficient relative to the size of the board
becomes significant in two regressions. It seems then that it is difficult in a large board
of directors to be influenced by the decisions of managers. Large boards can usually
take advantage of the different experiences of the members which impacts negatively
earnings management ( Jian and Ken, 2004). Finally, concerning control variables, the
 (1) (2) (3) (4)
External
LLPD LLPD LLPD LLPD auditing
quality
DUAL 0.00448 (1.57) 0.000971 (0.40) 0.00974** (2.58) 0.00522* (1.67)
Ln-BD 0.0158 (1.58) 0.0417* (1.97) 0.0155 (1.07) 0.0362* (2.34)
AFFILFORG 0.00230 (0.35)
AFFILSTAT 0.0155** (3.28) 91
AFFILINST 0.0250*** (5.22)
AFFILFAM 0.0152*** (4.21)
SMOOTH 0.547* (1.89) 0.449* (1.75) 0.179* (0.97) 0.442* (1.77)
CAR 0.00197*** (5.03) 0.0028*** (5.41) 0.000947* (2.27) 0.00238*** (5.33)
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

SIZE 0.00167 (0.24) 0.0139* (1.81) 0.0187*** (3.29) 0.00174 (0.36)

CONC 0.0000662* (1.85) 0.0000465 (0.52) 0.000174* (1.73) 0.000082** (2.54)
Constant 0.0339 (0.32) 0.0907304 (0.89) 0.333*** (3.52) 0.0875 (1.26)
n 50 50 50 50
R2 48% 59% 60% 52%

Notes: LLPD, discretionary loan loss provisions; DUAL, binary variable equals to 1 if there is an overlapping of the
functions of chairman of the board and CEO and 0 otherwise; Ln-BD, log of the number of directors on the board;
AFFIFORG, percentage of directors affiliated with the largest shareholder who is foreign; AFFILSTAT, percentage
of directors affiliated with the largest shareholder who is the State; AFFILINST, percentage of directors affiliated Table VII.
with the largest shareholder who is institutional; AFFILFAM, percentage of directors affiliated with the largest Panel regression
shareholder who are mainly members of the same family; SMOOTH, net income before tax and loan loss provisions of affiliation nature
reported to total assets; CAR, capital adequacy ratio; SIZE, log of total assets; CONC, percentage of the largest on discretionary
shareholder in the bank’s capital. ***, **, *Significance at 1, 5 and 10 percent levels, respectively provisions

results remain unchanged even after controlling for the nature of affiliation which
confirms the robustness of our results.

5. Conclusion
The objective of this research is to provide a better understanding of the consequences
of the codification of governance practices on discretionary practices. It aims to test
the impact of the board characteristics and the quality of external audit on the
provisioning policy of Tunisian banks. To do this, we used a sample of ten Tunisian
banks listed on Tunisia Stock Exchange and representing over 90 percent of total bank
assets over the period (2003-2007).
The results show that among the characteristics of the board of directors, the
combination of management and control functions contributes to the ineffectiveness of
the decisions of the board by increasing the discretionary practices of provisions.
However, the affiliation variable, which measures the degree of affiliation of directors to
the largest shareholder, affects significantly and negatively the discretionary provisions.
Further analysis reveals that directors affiliated to the State and institutions behave
differently than those affiliated to the same family members. Our results reveal also that a
co-audit belonging to the BIG 4 increases the discretionary provisions while the capacity
of the external auditor to disclose reservations impacts negatively the manager’s
discretion. Finally, the Tunisian banks use loan loss provisions to manage their results
and those heavily capitalized have less intention to manipulate their provisions.
These results have implications for both stakeholders and policy makers. First, it
is not desirable to appoint a co-audit both belonging to the BIG 4. Second, the effect
of affiliated directors on accounting manipulations is favorable. Generally, the presence
of affiliated directors on the board reduces the discretionary practices except in cases
 JAEE where directors are affiliated to families. In this case, banks should strengthen the
4,1 presence of independent directors. Finally, the delineation of the leeway left in the
Tunisian accounting standards would provide more transparent financial information.
Notes
1. Although the estimation of provisions is intended by accounting standards, it stills in part
subject to the subjective assessment of the manager. Thus, the constitution of provisions
92 includes an objective part set by the banking regulation and a discretionary part that
managers can use to manage their results upwards or downwards depending on the outcome
they want to achieve.
2. Available at: www.ecgi.org/codes/documents/guide_tunisia_2008_en.pdf
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

3. According to the descriptive statistics, in 74 percent of cases, the percentage of affiliated

directors to the largest shareholder exceeds 50 percent.
4. The percentage of shareholders (or investors) in a bank does not match the percentage of
directors in the board. For example, if a bank is held by foreign investors, the proportion of
foreigners in the board will be high but not equal to the percentage of foreign shareholders.
However, the voting right of foreign directors is proportional to the number of shares held.
5. The “BIG 4” are the four largest international firms of accounting and professional services.
They audit the majority of listed companies. The “Big 4” includes Pricewaterhouse Coopers,
KPMG, Ernst & Young and Deloitte Touche Tohmatsu.
6. A qualified opinion report is issued when the auditor encountered one of two types of situations
which do not comply with the financial reporting framework, however, the rest of the financial
statements are fairly presented. An auditor gives a clean or unqualified opinion when he does
not have any significant reservation in respect of matters contained in the financial statements.
7. Amen Bank (AB), Arab Tunisian Bank, Attijari Bank, Bank of Housing, International Arabic
Bank of Tunisia, the National Agricultural Bank (BNA), Bank of Tunisia, Tunisian Society of
banks (STB), Banking Union for Trade and Industry and the International Union of Banks.
8. The method of panel data with individual effect is used to estimate the coefficients over
1998-2002 used later in the calculation of theoretical provisions. The Hausman test is used to
specify the heterogeneous nature of the model either fixed or random. Similarly, using the
method of “PCSE,” considered more appropriate for micro panels, gives similar results.
9. Correlation test of Pearson between explanatory variables show that correlation problems
appear between governance variables related to the nature of directors. The highest
correlation coefficient is the one that connects institutional directors to foreigners (86
percent). In fact, foreign directors are usually representatives of foreign banks. Similarly,
applying the Variance Inflation Factor (VIF) test, the VIF values exceed the critical values of
ten for the foreign directors and institutions (21.65 and 16.18 percent).
10. This endogeneity problem is due to the fact that users of financial statements do no longer
perceive the principal role of the auditor consisting in protecting the rights of the company
against any abuse by the manager. In fact, a board that does not favor the control is required
to appoint an accomplice auditor. The auditors deemed by their qualities can be appointed
only by independent boards of directors (Sakka, 2009).
References
Abdul Rahman, R. and Mohamed Ali, F.H. (2006), “Board, audit committee, culture and earnings
management: Malaysian evidence”, Managerial Auditing Journal, Vol. 21 No. 7, pp. 783-804.
Ahmed, A.S., Takeda, C. and Thomas, S. (1999), “Bank loan loss provisions: a re-examination of
capital management, earnings management and signaling effects”, Journal of Accounting
and Economics, Vol. 28 No. 1, pp. 1-25.
 Anderson, R., Mansi, S. and Reeb, D. (2003), “Founding family ownership and the agency cost of External
debt”, Journal of Financial Economics, Vol. 68 No. 2, pp. 263-285.
auditing
Andres, P. and Vallelado, E. (2008), “Corporate governance in banking: the role of the board of
directors”, Journal of Banking & Finance, Vol. 32 No. 12, pp. 2570-2580. quality
Anuchitworawong, C. (2004), “Deposit insurance, corporate governance and discretionary
behaviour: evidence from Thai financial institutions”, Working Paper No. 2004-15, Centre for
Economic Institute, Hitotsubashi University, Tokyo. 93
Barth, J., Caprio, G. and Levine, R. (2004), “Bank regulation and supervision: what works best?”,
Journal of Financial Intermediation, Vol. 13 No. 2, pp. 205-248.
Beatty, A.L., Ke, B. and Petroni, K.R. (2002), “Earnings management to avoid earnings
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

declines across publicly and privately held banks”, The Accounting Review, Vol. 77 No. 3,
pp. 547-570.
Beck, N. and Katz, J.N. (1995), “What to do (and to not do) with time series cross section data”,
American Political Science Review, Vol. 89 No. 3, pp. 634-647.
Beck, N. and Katz, J.N. (1996), “Nuisance vs substance: specifying and estimating time series
cross section models”, Political Analysis, Vol. 6 No. 1, pp. 1-36.
Beck, T. and Levine, R. (2004), “Stock markets, banks, and growth: panel evidence”, Journal of
Banking and Finance, Vol. 28 No. 3, pp. 423-442.
Becker, C., DeFond, M., Jiambalvo, J. and Subramanyam, K. (1998), “The effect of audit quality on
earnings management”, Contemporary Accounting Research, Vol. 15 No. 1, pp. 1-24.
Bennecib, F. (2004), “De l’efficacité du co-commissariat aux comptes”, PhD dissertation,
IX Dauphine University, Paris.
Bhagat, S. and Jefferis, R.H. Jr (2002), The Econometrics of Corporate Governance Studies,
MIT Press, Cambridge, MA, 114pp.
Booth, R. and Deli, N. (1996), “Factors affecting the number of outside directorships held by
CEOs”, Journal of Financial Economics, Vol. 40 No. 1, pp. 81-104.
Boudriga, A., Jellouli, S. and Mamoghli, C. (2011), “Caractéristiques du conseil d’administration,
qualité d’audit et risque de crédit: cas des banques tunisiennes”, Revue Tunisienne de
Banque, Finance et Gouvernance, pp. 8-19.
Boulila Taktak, N. (2008), “Analyse explicative de la politique de provisionnement des
banques tunisiennes”, Deuxième colloque international Fiscalité Droit Gestion,
Hammamet, Mai.
Boulila Taktak, N., Boudriga, A. and Nefla Ajmi, D. (2010), “Loan loss reserves of weakly
provisioned banks: evidence from major Tunisian banks”, Afro-Asian J. Finance and
Accounting, Vol. 2 No. 1, pp. 1-21.
Bradbury, M., Mak, Y. and Tan, S. (2006), “Board characteristics, audit committee characteristics
and abnormal accruals”, Pacific Accounting Review, Vol. 18 No. 2, pp. 47-68.
Brickley, J.A., Coles, J.L. and Jarell, J.A. (1997), “Leadership structure: separating the CEO and
chairman of the board”, Journal of Corporate Finance, Vol. 3 No. 3, pp. 189-220.
Bushman, R., Chen, Q., Engel, E. and Smith, A. (2004), “Financial accounting information,
organizational complexity and corporate governance systems”, Journal of Accounting and
Economics, Vol. 37 No. 2, pp. 167-201.
Coombes, P. and Wong, S.C.Y. (2004), “Chairman and CEO – one job or two?”, The McKinsey
Quarterly, No. 2, pp. 43-47.
Cornett, M., McNutt, J. and Tehranian, H. (2009), “Corporate governance and earnings
management at large US bank holding companies”, Journal of Corporate Finance, Vol. 15
No. 4, pp. 412-430.
 JAEE Cornett, M., Marcus, A.J., Saunders, A. and Tehranian, H. (2007), “The impact of institutional
ownership on corporate operating performance”, Journal of Banking and Finance, Vol. 31
4,1 No. 6, pp. 1771-1794.
Datar, S.M., Feltham, G.A. and Hughes, J.S. (1991), “The role of audits and audit quality in
valuing new issue”, Journal of Accounting and Economics, Vol. 14 No. 1, pp. 3-49.
De Angelo, L. (1981), “Auditor size and auditor quality”, Journal of Accounting and Economics,
94 Vol. 3, December, pp. 183-199.
Dewatripont, M. and Tirole, J. (1994), “A theory of debt and equity: diversity of securities
and manager shareholders congruence”, The Quarterly Journal of Economics, Vol. 109
No. 4, pp. 1027-1054.
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

Ebondo Wa Mandzilla, E. (2006), “Une approche par l’audit et le contrôle intern”, Choice in the
UK and Audit Market: Progress Report and Further Consultation, L’harmattan Financial
Reporting Council, Paris, 2008.
Elleuch-Hamza, S. and Boulila-Taktak, N. (2009), “La gestion des résultats des banques
tunisiennes: vers une gestion réelle”, La place de la dimension européenne dans la
Comptabilité Contro# le Auditproceedings of the 30th Congress of the Francophone,
Association of Accounting, May, Strasbourg.
Epps, R.W. and Ismail, T.H. (2009), “Board of directors’s governance challenges and
earnings management”, Journal of Accounting and Organizational Change, Vol. 5 No. 3,
pp. 390-416.
Fama, E. and Jensen, M.C. (1983), “Separation of ownership and control”, Journal of Law and
Economics, Vol. 26 No. 2, pp. 301-325.
Hashim, H.A. and Devi, S. (2008), “Board characteristics, ownership structure and
earnings quality: Malaysian evidence”, Research in Accounting in Emerging Economies,
Vol. 8, pp. 97-123.
Healy, P.M. and Palepu, K.G. (2003), “The fall of Enron”, Journal of Economic Perspectives, Vol. 17
No. 2, pp. 3-26.
Jaggi, B., Leung, S. and Gul, F.A. (2007), “Board independence and earnings management in Hong
Kong firms: some evidence on the role of family ownership and family board control”,
working paper, Department of Accounting and Information System, Rutgers University,
New Brunswick, NJ.
Jensen, M.C. (1993), “The modern industrial revolution, exit and the failure of internal control
systems”, Journal of Finance, Vol. 48 No. 3, pp. 831-880.
Jian, C. and Ken, Z. (2004), “Audit committee, board characteristics and earnings management by
commercial banks”, working paper, School of Management, Binghamton University.
Kabir, M.H., Sharma, D. and Islam, M.A. (2011), “Big 4 auditor affiliation and accruals quality in
Bangladesh”, Managerial Auditing Journal, Vol. 26 No. 2, pp. 161-181.
Kao, L. and Chen, A. (2004), “The effects of board characteristics on earnings management”,
Corporate Ownership and Control, Vol. 1 No. 3, pp. 96-107.
Kim, M.S. and Kross, W. (1998), “The impact of the 1989 changes in bank capital standards on
loan loss provisions and write-offs”, Journal of Accounting and Economics, Vol. 25 No. 1,
pp. 69-99.
Klein, A. (2002), “Audit committee, board of directors’ characteristics and earnings
management”, Journal of Accounting and Economics, Vol. 33 No. 3, pp. 375-400.
Lang, M. and McNichols, M. (1999), “Institutional trading and corporate performance”, working
paper, Stanford University, Stanford, CA.
La Porta, R., Lopez-de-Silanes, F. and Shleifer, A. (2002), “Government ownership of commercial
banks”, Journal of Finance, Vol. 57 No. 1, pp. 265-301.
 Lennox, C. (1999), “Audit quality and auditors size: an evaluation of reputation and deep External
pockets hypotheses”, Journal of Business Finance and Accounting, Vol. 26 Nos 7-8,
pp. 779-805. auditing
Lin, Y.F. (2005), “Corporate governance, leadership structure and CEO compensation: evidence quality
from Taiwan”, Corporate Governance, Vol. 13 No. 6, pp. 824-835.
Lipton, M. and Lorsch, J. (1992), “A modest proposal for improved corporate governance”,
Business Lawyer, Vol. 48 No. 1, pp. 59-77. 95
Nôel, C., Fremeaux, S. and Chenini, S. (2009), “L’imitation, moteur de la réglementation
financière? L’exemple de l’adoption du co-commissariat aux comptes en Tunisie”, La place
de la dimension européenne dans la Comptabilité Contro# le Audit proceedings of the 30th
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

Congress of the Francophone Association of Accounting, May, Strasbourg.

Omri, A. (2003), “Systèmes de gouvernance et performance des entreprises tunisiennes”,
Lavoisier, Revue franc¸aise de gestion 2003/1, No. 142, pp. 85-100.
Omri, A., Ajlani, I. and Rbia, M.A. (2007), “Pratiques discrétionnaires des banques tunisiennes”,
working paper, Tunisian Management Association, Hammamet.
Paquerot, M. (1997), “Stratégies d’enracinement des dirigeants, performance de la firme et
structures de contrôle”, in Charreaux, G. (Ed.), Le gouvernement des entreprises,
Économica, Paris, pp. 105-138.
Park, Y.W. and Shin, H.H. (2004), “Board composition and earnings management in Canada”,
Journal of Corporate Finance, Vol. 10 No. 3, pp. 431-457.
Peasnell, K.V., Pope, P.F. and Young, S. (2005), “Board monitoring and earnings management: do
outside directors influence abnormal accruals?”, Journal of Business Finance and
Accounting, Vol. 32 Nos 7-8, pp. 1311-1346.
Piot, C. (2001), “Agency costs and audit quality: evidence from France”, The European
Accounting Review, Vol. 10 No. 3, pp. 461-499.
Piot, C. and Janin, R. (2007), “External auditors, audit committees and earnings management in
France”, European Accounting Review, Vol. 16 No. 2, pp. 429-454.
Reshner, P.L. and Dalton, D.R. (1991), “CEO duality and organizational performance: a
longitudinal analysis”, Strategic Management Journal, Vol. 12 No. 2, pp. 155-160.
Rusmin, R. (2010), “Auditor quality and earnings management: Singaporean evidence”,
Managerial Auditing Journal, Vol. 25 No. 7, pp. 618-638.
Sakka, A. (2009), “L’auditeur: complice ou victime de l’audité?”, La place de la dimension
européenne dans la Comptabilité Contro# le Auditproceedings of the 30th Congress of the
Francophone Association of Accounting, May, Strasbourg.
Schulze, W.S., Lubatkin, M.H. and Dino, R.N. (2003), “Exploring the agency consequences
of ownership dispersion among the directors of private family firms”, The Academy of
Management Journal, Vol. 46 No. 2, pp. 179-194.
Vander Bauwhede, H. (2005), “Corporate governance and the cost of debt in the European
Union”, working paper, Presented at the 2005 EAA congress in Gothenburg, University
of Leuven, Gothenburg.
Watts, R.L. and Zimmerman, J.L. (1983), “Agency problems, auditing and the theory of the firm:
some empirical evidence”, The Journal of Law and Economics, Vol. 26 No. 8, pp. 613-633.
Xie, B., Davidson, W. and Dalt, P. (2003), “Earnings management and corporate governance:
the role of the board and the audit committee”, Journal of Corporate Finance, Vol. 9 No. 3,
pp. 295-316.
Zéghal, D.M., Chtourou, S. and Fourati, Y.M. (2006), “Impact de la structure de propriété et
de l’endettement sur les caractéristiques du conseil d’administration: Etude empirique
 JAEE dans le contexte d’un pays émergent”, COMPTABILITE, CONTROLE, AUDIT ET
INSTITUTION(S) proceedings of the 27th Congress of the Francophone Association of
4,1 Accounting, Tunis.

About the authors

Associate Professor Neila Boulila Taktak is an Interdisciplinary Finance Researcher whose
initial contributions to the finance literature were in the corporate governance, accounting
96 manipulations, financial stability and Islamic finance fields. She is the author of several scientific
publications dealing with the Tunisian and international context. She is a member of the editorial
team for Journal of Islamic Accounting and Business Research. Associate Professor Neila Boulila
Taktak is the corresponding author and can be contacted at: neila_boulila@yahoo.fr
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

Ibtissem Mbarki is a Finance Researcher whose is currently pursuing his PhD study at the
University of Carthage, Tunisia.

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

Or visit our web site for further details: www.emeraldinsight.com/reprints
 This article has been cited by:

1. AlzoubiEbraheem Saleem Salem, Ebraheem Saleem Salem Alzoubi. 2019. Audit committee, internal audit
function and earnings management: evidence from Jordan. Meditari Accountancy Research 27:1, 72-90.
[Abstract] [Full Text] [PDF]
2. María Consuelo Pucheta-Martínez, Inmaculada Bel-Oms, Mehdi Nekhili. 2018. The contribution of
financial entities to the sustainable development through the reporting of corporate social responsibility
information. Sustainable Development 62. . [Crossref]
3. Naima Lassoued, Mouna Ben Rejeb Attia, Houda Sassi. 2018. Earnings management in islamic and
conventional banks: Does ownership structure matter? Evidence from the MENA region. Journal of
International Accounting, Auditing and Taxation 30, 85-105. [Crossref]
Downloaded by UNIVERSITAS TRISAKTI, User Trisakti At 06:57 19 February 2019 (PT)

4. KumariPrity, Prity Kumari, PattanayakJamini Kanta, Jamini Kanta Pattanayak. 2017. Linking earnings
management practices and corporate governance system with the firms’ financial performance. Journal of
Financial Crime 24:2, 223-241. [Abstract] [Full Text] [PDF]
5. SafdarRaheel, Raheel Safdar, YanChen, Chen Yan. 2016. Managing accruals for income smoothing:
empirical evidence from Pakistan. Journal of Accounting in Emerging Economies 6:4, 372-387. [Abstract]
[Full Text] [PDF]
6. MersniHounaida, Hounaida Mersni, Ben OthmanHakim, Hakim Ben Othman. 2016. The impact of
corporate governance mechanisms on earnings management in Islamic banks in the Middle East region.
Journal of Islamic Accounting and Business Research 7:4, 318-348. [Abstract] [Full Text] [PDF]
7. Ebraheem Saleem Salem Alzoubi. 2016. Audit quality and earnings management: evidence from Jordan.
Journal of Applied Accounting Research 17:2, 170-189. [Abstract] [Full Text] [PDF]