and Meckling, 1976; Fama and Jensen, 1983) and political process theory (Watts and Zimmerman 1986) are supported. Fourth, international companies are shown to comply more overall (significant at the .0001 level) although the association does not hold with MNEW. This provides support for hypothesis H10 in line with Glaum and Street (2003) and Al-Shammari (2005) and is consistent with Zarzeski’s (1996) argument that companies will disclose more information if they have large proportions of foreign sales. International firms may find compliance with recognised accounting standards reduces the chance of misunderstanding and misinterpretations, thereby strengthening confidence (Wyatt, 1997). Finally, actively-traded companies are shown to comply overall more (significant at the .0001 level), although this only holds for the one partial index MCND. This provides support for hypothesis H8 in line with many previous studies (Dumontier and Raffournier, 1998; El-Gazzar et al. 1999; Murphy 1999; Street and Bryant 2000; Street and Gray, 2002) that have looked at the influence of listing status or multilisting, on the level of compliance with IASs. In line with these findings, the lowest levels of compliance were as low as 16% on disclosure and 17% on measurement/presentation and were obtained by companies which did not have a large international audit firm, were closelyheld and were not international, whereas the highest levels of compliance at 90% on disclosure and 93% on measurement/presentation were obtained by companies audited by large international firms. In relation to the remaining five independent variables there was no association with overall compliance, although Table 8 does show some association with specific partial models. The lack of association between compliance measured by any of the indices in relation to profitability (H1) and liquidity (H2), while consistent with findings of prior studies (Tower et al., 1999; Street and Bryant, 2000, Street and Gray, 2002; Glaum and Street, 2003; Al-Shammari, 2005), is not consistent with signalling and political process theories arguments (Inchausti, 1997; Dumontier and Raffournier, 1998; Watts and Zimmerman, 1986). Similarly, the lack of association between compliance and gearing (H4), while consistent with the
findings of Tower et al. (1999), is not consistent with agency theory arguments (Jensen and Meckling, 1976). Moreover, while the finding that industry sector (H7) is insignificant in relation to compliance is consistent with Street and Bryant (2000) and Al-Shammari (2005), it is not consistent with political process theory arguments (Ball and Foster, 1982; Watts and Zimmerman, 1986). Finally, the legal form variable (H9) is found to be insignificant in relation to the overall level of compliance. Thus hypotheses H1, H2, H4, H7 and H9 are not supported in terms of overall compliance.
6 Discussion of findings The current study shows a change compared with prior disclosure research conducted in the first year of the reactivation of the CASE. In her earlier study, Abd-Elsalam (1999, p.262) concluded that: ‘positive accounting theories are too simplistic as they do not offer strong explanation for varying disclosure levels in Egyptian listed companies in 1995, associated with low R2 varying between 21%–46%’. In the current study the R2 associated with the firmspecific factors ranges between 48% and 72% across the various partial disclosure indices and is 71% for overall disclosure. The range is between 47% and 67% across the various partial measurement indices and 69% for overall measurement/presentation. This indicates that positive accounting theories, especially agency theory provide strong evidence for explaining differing levels of compliance with EASs. Firm specific characteristics have most explanatory power in relation to the MCND index and least explanatory power in relation to the MNEW index. That is compliance is generally highest where the EASs have introduced no change to preexisting Egyptian regulation and is generally lowest when a completely new regulation is implemented. This suggests that de facto compliance may involve other determinants beyond the typical micro determinants considered by agency, political process, signalling and capital need theories. Such other determinants might include education/training, since these findings are consistent with Cairns’ (2001) argument that the adoption of new financial reporting requirements brings additional problems, one of the most significant being the education and training of accountants.
Enforcement may be another determinant, since weak enforcement mechanisms permit a gap to develop between official accounting standards and actual practices (Lin and Liyan, 2001; Chen et al., 2002; Taplin et al., 2002). It is possible that the lowest levels of compliance associated with changed or completely new regulation may be related to weak enforcement of EASs. That is, the mechanisms used by the CMA to enforce and monitor corporate compliance may have been inadequate. Some support for this proposition is evident by the introduction of new listing rules effective from August 1, 2002 that aim to enhance administrative action against issuers that do not comply with EASs. It will be interesting to investigate in future whether these do increase the levels of compliance. The findings indicate that de facto compliance tends to be very low unless the company is connected with a large international audit firm or is publicly owned. Being audited by one of the large audit firms (as a proxy for high professionalism) is the dominant factor in this study contrasting with the earlier findings of Abd-Elsalam (1999) in Egypt. However, the current study is consistent with previous literature in other countries which has drawn on agency and signalling theories to show that companies which are audited by big four audit firms comply more with IASs and is consistent with Chen et al. (2002) who reported that lack of quality audit is an important contributing factor for non-compliance with IASs. Due to problems associated with the audit profession (Samaha and Stapleton, 2008), it was expected that international audit firms operating in Egypt would be more familiar with IASs leading to an expectation that Egyptian companies audited by one of the international firms will comply more closely with the EASs, as these are based on IASs. The findings in relation to ownership concentration are also consistent with previous literature which has drawn on agency theory to show that companies with wider ownership diffusion comply more with IASs. Compliance with EASs and nonmandated but applicable IASs by companies with medium ownership concentration may be aimed at reducing agency costs. Gray’s (1988) secrecy hypothesis also argues that where a firm’s shares are closely held, there is a preference for confidentiality so that disclosure is restricted to those who are