Statistical Examination of Earnings Management, Financial Distress, and Managerial Competence

The research aims to unveil the nexus between earnings management, financial distress, and managerial ability within the Saudi economy, we analyzed data from 95 firms listed in the Saudi market (TADAWUL) from 2012 to 2023 using a quantitative approach, through four statistical models to explore the determinants of earnings management and managerial ability. Moreover, examine how earnings management and managerial ability impact financial distress. Furthermore, how managerial ability moderates the nexus between earnings management and financial distress. Our results reveal that firm attributes have mixed impacts on limiting earnings management and enhancing managerial ability. Besides, earnings management increases the probability of financial distress, but managerial ability decreases it. Our findings contribute to the academic accounting literature by providing empirical evidence from the Saudi context and provide other insights into the influence of earnings management and managerial ability in shaping a firm’s financial health. In addition, it gives investors, professionals, policymakers, and regulators insights into this arguable area. Additionally, it can direct future research to explore the nexus between earnings management, financial distress, and managerial ability in other economies to develop a comprehensive framework of this field.