This study examines the impact of audit committee characteristics, specifically independence and size, on the financial performance of firms, with earnings management incorporated as a mediating variable. The analysis draws on a balanced panel of 35 non-financial firms listed on the Iraq Stock Exchange from 2011 to 2023. A two-step system Generalised Method of Moments (GMM) estimator, was applied to mitigate endogeneity, heterogeneity, and simultaneity concerns. The results reveal that audit committee independence is negatively and significantly associated with both accounting-based (ROA and ROE) and market-based (Tobin’s Q) performance, while committee size shows a positive effect on ROA and ROE but a negative effect on Tobin’s Q. Importantly, mediation analysis confirms that earnings management plays a significant indirect role: it diminishes the positive effect of committee size on profitability and amplifies the negative impact of independence on market valuation. These findings underscore that the influence of audit committee structures on firm performance operates not only directly but also indirectly through the channel of earnings management. Overall, this study advances corporate governance research in emerging markets by demonstrating that the effectiveness of audit committee attributes in Iraq is context-specific and closely tied to the presence of earnings manipulation. The findings carry practical implications for regulators and policymakers, highlighting the importance of strengthening audit committee oversight to curb earnings management and to safeguard sustainable financial performance.
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