Do Narrative Strategies Matter? Evidence on Earnings Management, Impression Management, and Future Stock Prices in Egypt

This study examines the effects of earnings management on future stock prices and investigates whether impression management moderates this relationship in the Egyptian capital market. It uses financial and narrative data extracted from the annual reports of firms listed on the Egyptian Stock Exchange (EGX) from 2020 to 2024. Regression models with robust estimations are used to test the hypotheses. The results revealed that discretionary accruals significantly influence future stock prices, indicating that investors penalize firms that engage in aggressive earnings management. This finding supports the market discipline hypothesis and suggests a growing sophistication among Egyptian investors, particularly in the post-2020 regulatory environment. However, impression management, operationalized through the content analysis of narrative disclosures, does not exert a significant moderating effect on the relationship between earnings management and stock prices. This evidence implies that investors place greater weight on audited financial information than on qualitative disclosures when forming valuation judgments in a low-trust institutional setting. The findings highlight the importance of enhancing the transparency and credibility of financial reporting in emerging markets. They also underscore the need for stricter regulatory enforcement to curb earnings manipulation and improve standards governing narrative disclosure. This study contributes to the literature by providing empirical evidence from Egypt and extending prior research on the interaction between earnings management, impression management, and market outcomes in developing economies.