Impact of Corporate Governance, Audit Quality and Firm Characteristics on Firm Profitability using Earnings Quality as a Moderating Variable

The main aim of this research was to investigate the impact of corporate governance (board characteristics) and audit quality on profitability using earnings quality as a moderator variable. Its observed data consisted of 336 annual data of a sample of 56 companies listed in the Egyptian Stock Exchange during the period 2015-2020. The proxies of corporate governance are board independence, board size and CEO duality. The proxies of audit quality are auditor size (big 4), audit committee size and audit committee independence. The control variables that are considered are financial leverage and firm size. Data analysis method used multiple regression analysis to examine the interrelation between the research variables.
Research results showed that board independence, large board size, large audit committee, audit committee independence and Big 4 audit firms  have a positive insignificant impact on the firm’ profitability, while financial leverage and CEO duality are found to have a negative relationship with firm’ profitability. In addition, the results show that board independence, large board size, large audit committee, audit committee independence, Big 4 audit firms, financial leverage and firm size have a positive impact on the earnings quality, while CEO duality is found to have a negative relationship with earnings quality. The findings indicate that the audit committee improves audit quality. These findings are similar with the earlier findings, which found that corporate governance and audit quality had a beneficial impact on business profitability through their impact on value relevance and firm value. The value relevance of financial reporting demonstrates its dependability. Effective corporate governance ensures the dependability of financial reporting, reducing the asymmetry of accounting information.