Do corporate governance mechanisms restrain earnings management? Evidence from Nigeria

Olojede Paul, Erin Olayinka and Adetula Dorcas

International Journal of Business Governance and Ethics, 2023, vol. 17, issue 5, 544-572

Abstract: This paper examines the effect of corporate governance mechanisms on earnings management within the Nigerian context. The study adopted the panel generalised least square regression to analyse the data. A sample size of 49 companies was selected from the non-financial companies listed on the Nigerian Stock Exchange for six years (2012-2017). Overall, corporate governance mechanisms jointly have not restrained the possibility of earnings management in Nigeria, but the degree of impact by individual corporate mechanisms showed mixed results. From the analysis, five corporate governance variables (ownership concentration, managerial ownership, board size, gender diversity, and audit committee independence) have positive relationship with earnings management. This indicates that an increase in any of these variables increases managers' latitude for using earnings management to manage the firms' earnings. This confirms ineffectiveness of all these variables in restraining earnings management. In contrast, two variables (CEO duality and board independence) contribute to the reduction of earnings management of the selected firms in Nigeria. However, CEO duality is not statistically significant. Given the findings, the study recommends stricter compliance and enforcement to the corporate governance codes and appropriate legislation. Besides, more independent directors' representation on the board should be encouraged.

Keywords: corporate failures; corporate governance mechanisms; earnings management; non-financial listed companies; Nigeria. (search for similar items in EconPapers)
Date: 2023
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