The effect of earnings management on firm performance: The moderating role of corporate governance quality

Christopher Boachie and Emmanuel Mensah

International Review of Financial Analysis, 2022, vol. 83, issue C

Abstract: This paper investigates the relationship between earnings management and financial performance of firms in Anglophone sub-Saharan African Countries in a dynamic framework. The study shows how this relationship is moderated by aggregate disclosure and best-practice corporate governance quality metrics. The findings indicate that earnings management's performance effects persist even after controlling for dynamic endogeneity, simultaneity, and unobserved time-invariant heterogeneity inherent in the earnings management and performance relationship. Again, the results support the prediction of agency theory regarding the efficient monitoring effect of adherence to best-practice internal governance systems in constraining firms' earnings management practices and subsequently enhancing firms' performance. Moreover, the study's findings regarding the positive effect of earnings management on performance, which suggests efficiency motives behind earnings management practices in Africa, demonstrate that the African context is uniquely different from other emerging markets that report opportunistic motives. Concerning the moderating role, our study reveals that the positive effect of earnings management on the financial performance of firms tends to be stronger in the presence of corporate governance quality.

Keywords: Earnings management; Corporate governance quality; Firm-performance; Dynamic modelling; Anglophone sub-Saharan African countries (search for similar items in EconPapers)
JEL-codes: C33 C38 G30 G34 M41 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:83:y:2022:i:c:s1057521922002277

DOI: 10.1016/j.irfa.2022.102270

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