Corporate Goverance Determinants of Earnings Management: Evidence from Nigerian Quoted Companies

Abstract

The aim of this study was to classify Nigerian quoted companies into high and low earnings management levels and also to investigate how corporate governance mechanisms relate to these categories of earnings management levels. A sample of 130 companies were drawn from quoted companies on the Nigerian stock exchange over the period of 2005 to 2010 and to identify the unique firm’s corporate governance characteristics and control variables that influence firms’ decision to engage in earnings management, we conducted descriptive statistics, correlation matrix, diagnostic test and binary regressions analyses of the data. The study revealed that, quoted companies in Nigeria prefer to use high earnings management practices; Board independence had a positive and significant influence on the probability of Nigerian companies adopting absolute high earnings management, Audit committee independence had a negative and significant influence on the probability of Nigerian companies adopting absolute high earnings management, Board gender representation had a negative and significant influence on the probability of Nigerian firms adopting absolute high earnings management and Also Board size and CEO shareholding were found to be statistically not significant in influencing the likelihood of Nigerian quoted companies adopting high earnings management levels. The control variables; firm size, auditors type and industry class were found to be positive and statistically significant in determining absolute high earnings management levels of Nigeria quoted companies.. This study recommended that stakeholders in quoted companies in Nigeria should promote sound audit independence, intensify the independence of board composition and encourage more female representation on the board.

DOI: 10.5901/mjss.2014.v5n23p553