Does the quality of voluntary disclosure constrain earnings management in emerging economies? Evidence from Middle Eastern and North African Banks

Purpose This study examines the influence of the quality of voluntary disclosure (QVD) on earnings management (EM) among a sample of commercial banks in the Middle East and North Africa (MENA) region. Design/methodology/approach Using a sample of 1,060 bank-year observations for the period 2006–2015, we developed a three-dimensional framework to measure the QVD, which considers the quantity, spread and usefulness of the information. Furthermore, this study examines the QVD-EM nexus employing an ordinary least squares (OLS) regression model. This technique is supplemented with conducting an instrumental variable (IV) regression model and a two-stage least squares (2 SLS) model to overcome the potential occurrence of endogeneity problems. Findings Our findings suggest that QVD is negatively attributed to EM in the context of MENA banks. The findings also confirm that the quality of financial reporting is enhanced by QVD dimensions that were considered in our framework, leading banks to less engagement in EM practices. In contrast, the influence of the quantity dimension (level) of the disclosed information has an insignificant impact on EM, while the spread and usefulness dimensions of voluntary disclosure (VD) are negatively and significantly associated with EM in the region. Originality/value Our study distinctively develops an innovative measurement for QVD using a new multidimensional model. We also bring new evidence on QVD complexity and its impact on EM practice from an under-researched developing context, namely the MENA region.