CEO characteristics and audit report lag: evidence from Egypt

• Date: 27 September 2024
• Pages: 32-67
• DOI: https://doi.org/10.1108/IJAIM-03-2024-0096
• Published date: 27 September 2024
• Subject Matter: Accounting & finance,Accounting/accountancy,Accounting methods/systems
• Author: Mosa Abdelgelil Amin,Eman Mohamed Abdelmaged,Awad Elsayed Ibrahim,Tarek Abdelfattah

CEO characteristics and audit report

lag: evidence from Egypt

Mosa Abdelgelil Amin and Eman Mohamed Abdelmaged

Department of Accounting, Faculty of Commerce, Mansoura University,

Mansoura, Egypt

Awad Elsayed Ibrahim

Portsmouth Business School, University of Portsmouth, Portsmouth, UK, and

Tarek Abdelfattah

Nottingham University Business School, University of Nottingham,

Nottingham, UK and Faculty of Commerce, Mansoura University,

Mansoura, Egypt

Abstract

Purpose –This study aims to investigate the relationship between Chief Executive Off‌icer (CEO)

characteristics and audit report lag(ARL) in Egypt, an emerging economy characterized by high power

distance and a culture of secrecy. The study utilizes a theoretical framework that integrates agency

theory, stewardship theory, and upper echelons theory as the foundation for examining this

relationship.

Design/methodology/approach –The sample consists of 587 f‌irm-year observations from non-f‌inancial

f‌irms listed on the EGX100, coveringthe period from 2012 to 2019. The primary variable of the study (ARL)

is measured using different proxies. The analysis utilizes both Ordinary Least Squares (OLS) and logistic

regression models, with additional analysis considering CEO power and using board gender diversity as a

moderatingvariable.

Findings –The study f‌inds that CEO characteristics signif‌icantly affect ARL, demonstrating a negative

association between CEO ownership, founder status, family ties, duality and ARL. These f‌indings remain

robust after a series of tests using alternative measures. Additional analysis reveals that CEO power is

negatively and signif‌icantly related to ARL. Interestingly, the negative association between CEO

characteristicsand ARL is more pronounced in boards without female members.

Originality/value –Although extensive researchhas been conducted on the factors determining ARL, few

studies have examinedthe impact of CEO characteristics on ARL, particularlyin emerging economies such as

Egypt. The business environment in Egypt is characterized by high power distance and a secretive culture,

providinga unique context for this study.

Keywords CEO characteristics, CEO power, Audit report lag, Emerging economies, Egypt

Paper type Research paper

1. Introduction

This study aims to investigate the potentialimpact of CEO characteristics on audit report lag

(ARL) within the context of an emerging economy, specif‌ically Egypt. The audit report is a

critical outcome of the audit process, providing the auditor’s perspective on the f‌inancial

statements, identifying material misstatements and assessing the business’s going concern

and other risks. ARL is def‌ined as the duration between a company’sf‌iscalyear-end and the

audit report date (Bamber et al., 1993). Stakeholders, who are keen on timely information,

prefer shorter ARLs because obtaining the auditor’s opinion promptly aids in informed

decision-making (Habib and Bhuiyan, 2011). Conversely, a delayed issuance of the audit

IJAIM

33,1

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Received16 March 2024

Revised26 July 2024

Accepted2 September 2024

InternationalJournal of

Accounting& Information

Management

Vol.33 No. 1, 2025

pp. 32-67

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-03-2024-0096

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1834-7649.htm

report may compromise the information’s value and quality, rendering it potentially

irrelevant (Knechel and Payne, 2001). This study focuses on unraveling the intricate

relationship between CEO characteristics and ARL within the specif‌ic context of Egypt’s

emerging economy.

Theoretically, agency theory posits that conf‌licts of interest between managers and

shareholders can inf‌luence corporate behavior, including the timeliness of f‌inancial

reporting. Prior studies on audit report lag use the agency theory to explain the ARL (e.g.

Ahmed et al., 2023;Hassan, 2016). Arguably, no one theory can fully explain corporate

behavior. On the contrary, the stewardshiptheory suggests that managers act as stewards of

the business and are likely to work for the interests of all stakeholders and the long-term

success of f‌irms.

The upper echelons theory suggests that an individual’s background, experiences and

values inf‌luence decision-making processes within an organization, suggesting that

organizational behavior and outcomes can be predicted by managers’characteristics

(Hambrick, 2007;Hambrick and Mason, 1984). As such, CEOs, being at the apex of

organizational decision-making, have the potential to inf‌luence the f‌irm’s behavior and

decisions, consequently impacting the timing of the audit report. While the CEO’s authority

over the audit report date appears to be limited, their involvement in overseeing the

preparation of f‌inancial reports and managing interactions with external auditors implies a

role in inf‌luencing ARL. So, the dynamics of communication between CEOs and external

auditors play a role in shaping ARL (Baatwah et al., 2015). In addition, the CEOs’

responsibility for executing the f‌irm’s strategy, decision-making within their authority and

adherence to f‌irm policies furtherpositions them as key players in determining the timeliness

and quality of f‌inancial reporting, including ARL. We use a theoretical framework that

integrates agency theory, stewardship theory, and upper echelons theoryto examine how the

unique attributes of CEOs in emergingmarkets, where cultural and business dynamics differ

signif‌icantly from developed markets, inf‌luence ARL. This integrated approach enhances

our understanding of the mechanisms through which CEO characteristics affect the

timeliness of audit reports.

Prior studies provide ample evidence of the CEO’s impact on f‌irm performance and

f‌inancial reporting quality(e.g. Altarawneh et al., 2020;Bhaskar et al., 2023;Bochkay et al.,

2019;Cao and Chen, 2023;Francis et al., 2008;Malmendier and Tate, 2005;Zhang and

Wiersema, 2009). For example, several studies on ARL have explored the impact of CEO

attributes such as CEO tenure and f‌inancial expertise(e.g. Baatwah et al., 2015;Salehi et al.,

2018), CEO duality (Abdullah, 2006;Af‌ify, 2009), CEO succession origin (Oradi, 2021).

However, the evidence from prior studies is mixed (Abernathy et al., 2017;Durand, 2019).

Notably, while studies have delved into various CEO-related attributes and their impact on

ARL, there remains a gap inthe literature concerning the associations between CEO founder

status, CEO family ties, CEO ownership and ARL specif‌ically in emerging markets with

unique cultures, such as Egypt. Therefore, our research question is as follows: Do CEO

characteristics affectaudit report lag in emerging capital markets?

The distinctive cultural characteristics of Egypt, marked by a secretive and high-risk

avoidance culture with a high-power distance (Abdelfattah, 2018;Abdelfattah and

Hussainey, 2019), have profound implications for the behavior of CEOs in the context of

ARL. The inclination toward avoiding uncertainty and resisting change, rooted in the

cultural fabric, can shape the way CEOs navigate decisions related to f‌inancial reporting.

Furthermore, the existence of a caste-like cultural system, where obedience to top

management is paramount and change is met with aversion (Abdelfattah and Aboud, 2020;

Abdelfattah and Elfeky, 2021), emphasizes the potential power CEOs hold in inf‌luencing

International

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organizational dynamics, including ARL. This cultural backdrop, with its emphasis on

hierarchy and deference to topleadership, may create an environment where CEOs exercise

signif‌icant control over the timeliness of audited f‌inancial statements. The high power

distance creates more accountability pressure (Endrawes and Leong, 2023) and adoption of

“fortify and defend”practices that supportthe f‌irm’s position in the industry (Gaganis et al.,

2019). Consequently, managers are more likely to issue annual reports promptly (Toumi

et al., 2022). Additionally, the auditor-in-chargein such a culture might spend less effort and

time on an audit engagement, resultingin a shorter ARL (Bik and Hooghiemstra,2017).

Family and group dynamics, which hold paramount importance in Egyptian culture

(Abdelsalam and Weetman, 2007;Ebrahim and Fattah, 2015), add another layer of

complexity to the role of CEOs in f‌inancialreporting. The subordination of the individual to

the family and the group, coupled with a strong sense of family loyalty, creates a context

where CEOs may prioritize familialrelationships in decision-making. In the context of ARL,

CEOs with familial ties may wield substantial inf‌luenceover the f‌inancial reporting process,

potentially impacting the speed at which audit reports are generated. Additionally, the

prevalence of nepotism in Egyptian workplaces (Abdelfattah and Elfeky, 2021;Abdelsalam

and Weetman, 2007;Caiazza and Volpe, 2015), suggests that CEOs with family ties may

have a considerablesay in determining the timing of audit reports.

The uncommon practice of Egyptian companiescross-listing on foreign stock exchanges

and adhering to internationallyrecognized standards for regulatory f‌ilings adds another layer

to the distinctive environment in which CEOs operate.The cultural nuances that discourage

such international engagements may shape CEOs’attitudes toward transparency and

compliance with global standards, potentially affecting the timeliness of audit reports.

Understanding the cultural intricacies specif‌ic to Egypt is essential for comprehending how

CEOs, especially thosewith family ties or founder status, navigate the complexlandscape of

f‌inancial reporting, impactingARL in ways unique to this cultural context. Tothe best of our

knowledge, no prior study has investigated the relationship between CEO founder status,

CEO family ties, CEO ownershipand ARL in Egypt. Therefore, our study contributes to the

literature by exploring the link between CEO characteristics and ARL in the Egyptian

context.

This study used a sample from non-f‌inancial listed f‌irms in the Egyptian Stock Market,

spanning the period from 2012 to 2019. The f‌indings provide evidence that CEO founder

status, duality, family ties and ownership have a signif‌icant and negative association with

ARL. Conversely, no evidencewas found of an association between CEO tenure and ARL.

The f‌indings remain robust when considering audit committee characteristics and using

alternative measures of ARL. We also report that f‌irms with higher CEO power are linked to

shorter ARL.

This study contributes to the literature in several ways. First, we add to the limited

number of studies investigating the effect of national culture on ARL (Toumi et al., 2022).

Second, we provide empirical evidencesuggesting that founder CEOs and those with family

ties are more likely to prioritize f‌inancial reportingquality by reducing the timeliness of their

f‌inancial reports. The results have important implications for regulators and other

stakeholders, informing them of the potential impact of CEOs’attributes on ARL,

particularly in emergingmarkets.

The paper is structured as follows. Section 2 reviews previous studies and develops the

study hypotheses. Section 3 presentsthe study design and methodology. Section 4 discusses

the basic analysis results, while Section5 presents the additional analysis. Finally, Section 6

concludes the study.

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