This study aims to examine the financial reporting quality (FRQ) of the Egyptian banking sector before and after the COVID-19 pandemic using Benford’s law (BL).
This study analyzes the annual and quarterly financial reports (balance sheet and income statement) of Egyptian-listed commercial banks from 2016 to 2023 by performing the first- and second-leading digit tests of BL. Z-statistic and mean absolute deviation (MAD) are used to assess the statistical significance of deviations from the BL distribution. Additional analysis is conducted using the CAMELS framework.
The results reveal that financial reporting figures of Egyptian-listed commercial banks conform to BL during both the pre- and post-COVID-19 periods, providing no evidence of systemic earnings manipulation, such as cosmetic earnings management across the banks analyzed during those periods. The post-COVID MAD value for the income statement exceeded its pre-COVID level marginally; however, both values remained below the nonconformity threshold, signifying acceptable adherence to BL. This suggests that the observed variation represents typical fluctuations rather than an indication of systematic manipulation, demonstrating a reasonable level of transparency and reliability in financial reporting practices. The findings suggest that the effectiveness of the regulatory environment and corporate governance mechanisms in the Egyptian banking sector may have contributed to enhancing financial integrity, especially during periods of crisis.
This study adds new empirical evidence, using BL, to address the impact of the COVID-19 pandemic on the FRQ of listed Egyptian banks. The findings expand on existing research by demonstrating the evolution of reporting practices during crises in a highly regulated sector in an emerging market. In addition, the study has significant implications for regulators, auditors, investors and multiple stakeholders by providing an effective and simple measure to detect earnings management in the banking industry.
