The impact of digital accounting practices on agency costs management: Evidence from an emerging market

Abstract

The increased penetration of digital technologies has significant implications for the role of digital accounting practices in enhancing corporate governance, particularly in emerging markets where agency problems are more serious. This study aims to investigate the impact of digital accounting practices on agency costs management in emerging markets. Using the theoretical foundations of agency theory and institutional theory, the study investigates the role of the application of blockchain technology and artificial intelligence in the management of agency costs and the effciency of financial reporting. The study used a balanced panel data set comprising 72 non-financial and financial firms listed on the Amman Stock Exchange from 2018 to 2023. To investigate the impact of applying digital accounting practices, the study used a multimodel approach by employing a fixed-effect regression model with a propensity score matching approach and a difference-in-differences approach. The study found that adopting digital accounting practices by firms is associated with a significant reduction in monitoring costs evidenced by a reduction in audit fees, a reduction in bonding costs captured by a reduction in the reliance on fixed management compensa-tion, and a slight improvement in the effciency of financial reporting. Industry-level analysis showed that financial sector firms are more inclined towards the application of digital accounting practices due to the regulatory environment, while the application of digital accounting practices by industrial sector firms is less pronounced resulting from capability constraints. The study provides empirical support that digital accounting practices can be used as a cost-effcient mechanism of corporate governance in the context of emerging markets.