The Role of Board Characteristics, Financial Leverage and Dividend Policy on Firm Value using Financial Statement Restatement as a Mediating Variable

Shareholders, creditors, regulators, and other market participants are increasingly concerned about the firm value that is impacted by the quality of financial reporting of companies that announce accounting restatements. The goal of this research is to investigate and analyze the effects of board characteristics (specifically, board size, board independence, and CEO duality) and financial decisions (specifically, financial leverage and dividend policy) on financial statement restatement and firm value. Also it intends to investigate the impact of all independent variables on firm value, with financial statement restatement serving as a mediating variable. Using three regression models, these relationships are investigated using content analysis of annual financial reports from 45 Egyptian stock exchange-listed companies from 2015 to 2020. The findings of this research show that the effectiveness of corporate governance structure (board characteristics) improves the quality and credibility of financial reporting while reducing the likelihood of financial restatement. The findings show that financial decisions and CEO duality have a positive impact on financial statement restatement, whereas board size, board independence, and control variables: firm size and return on assets have a negative impact. Furthermore, findings show that board size and independence have a negative impact on financial restatement. As a result, board of directors’ members can contribute additional business knowledge and experience to ensure that financial statements are of high quality. The results also show that all independent and control variables have a significant impact on the value of a company, except that the size of the board and the independence of the board have a significant impact on the value of the company. The results show that large companies tend to have good internal control systems and are expected to improve accounting and maintain their reputation by providing high quality financial reporting corporate policies and board size. It suggests that we can provide high quality audit services from large accounting firms, and independence and control variables: Company size and return on assets have a positive impact on the value of the company, while financial leverage and the CEO have a negative impact on the value of the company.
This research contributes to a nuanced understanding of internal governance mechanisms related to board characteristics by presenting evidence of its importance and impact with firm financial decisions on firm value through reducing financial statements  restatement in an emerging economy like Egypt in which firms operate within a unique regulatory framework and board composition.