– Effect of Corporate Governance on Earnings Management Practices of Nigeria Quoted Companies (2010-2015) –
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ABSTRACT
The study examines the effect of Corporate Governance on Earnings Management practices in Nigeria listed firms. Specifically the study examined the joint effect of board size, board independent and audit committee independent, Board size, Board Independence and Audit committee independence on earnings management.
This is premised on the increasing failure of firms in Nigeria and which translate into the inability of organizations to meet the expectations of their various stakeholders and to adhere to a mandatory compliance to corporate governance codes.
The modified Jones model was adopted for non discretional accrual while simple and multiple regression was explored to investigate the corporate governance element on earnings management practices in Nigeria quoted companies.
Four research hypotheses were formulated for the study. Data for this study were sourced from the financial statement of twelve firms from the period of 2010-2015. These data were analyzed with the aid of Statistical Package for Social Sciences (SPSS) version -23.
The study revealed that Corporate Governance Practices have significant influences on earnings management practice among Nigerian quoted firms.
Based on our findings, it was recommended that there should be constant review and improvement in the Nigeria corporate governance codes governing companies and other listed firms.
Secondly, the use of modified Jones models (earnings management models) in detecting certain types of accrual accounting should be encouraged, because they are substantially more powerful at detecting subtle and bad debt manipulations.
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Contents vi
Abstract ix
CHAPTER ONE: INTRODUCTION
- Background of the Study 1
- Statement of the problem 3
- Research Objectives 5
- Research Questions 6
- Hypotheses 6
- Significance of the Study 7
- Scope and Limitation of the Study 8
- Operational Definition of Terms 8
CHAPTER TWO: REVIEW OF RELATED LITERATURE
- Conceptual Review 10
2.1.1 Earnings management 10
2.1.2 Corporate Governance elements 11
- Corporate governance 11
- Board size: 14
2.1.5 Audit committee: 15
2.1.6 Board independence 15
2.1.7 Techniques of Earnings Management 17
2.1.8 Major Scandals of the twenty-first century 19
2.2 Theoretical Framework 20
2.2.1 Stakeholder theory 20
- Review of empirical work 22
CHAPTER THREE: METHODOLOGY
3.1 Research Design 31
3.2 Population of the study 31
3.3 Sample size Determination 31
3.4 Sources of Data 32
3.5 Model specification 33
3.5.1 Model for firms earnings management represented by NDA 33
3.5.2 Model one 34
3.5.3 Model two 34
3.5.4 Model three 35
3.5.5 Model four35
3.6 Method of data Analysis 36
3.7 Description of Variables 37
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Data Presentation 38
4.2 Data analysis 38
4.2.1 Answer to Research Questions 39
4.3 Test of Hypotheses 41
4.4 Discussion of findings 44
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of findings 47
5.2 Conclusion 47
5.3 Recommendations 48
5.4 Contribution to Knowledge 49
References 50
Appendices 57
INTRODUCTION
Background of the Study
Financial scandals around the world and the recent collapse of major corporate institutions in the United State of America (USA), South East Asia, Europe, and Africa such as Adelphia, Enron, commercial Banks and recently XL Holidays have shaken investors’ faith in the capital market and the efficacy of existing corporate governance practices in promoting transparency and accountability.
This has brought to the fore once again the need for the practice of good corporate governance (Kajola, 2008).
Corporate governance is about ensuring that the business is run well and investors receive a fair return. Organisation for Economic Corporation and Development (OECD), (1999) provides a more encompassing definition of corporate governance. It defines corporate governance as the system by which business corporations are directed and controlled.
The corporate governance structures specify the distribution of rights and responsibilities among different participants in the corporation such as the board, managers, shareholders and other stake holders, and spells out the rules and procedures for making decisions on corporate affairs.
Kang and Kim (2011) note that management could influence reported earnings by making accounting choices or by making operating decisions discretionally.
According to Ebraheam, Saleem and Alzonbi (2012), the integrity of financial reporting system was being questioned due to the failure of the board to oversight its implementation.
Defond and Francis (2005) claimed that the corporate collapse consequence has renewed the significance of corporate governance minority role.
Earnings Management has consistently raised severe concerns about corporate governance practices in a broad-spectrum.
Also, it has brought to spotlight issues relating to quality of financial reporting and the weak internal control system among firms (Ebrahim, 2007; Kanchanapoomi, 2005; Bellow, 2011; & Uwuigbe, 2013).
The Corporate failures of such large organizations in the past have highlighted the intentional misconduct of managers in a wider-spectrum.
In addition, there are apprehensions about the weakness of corporate governance in the past as it was not effective enough to protect investors from expropriation (Uwuigbe, Daramola & Anjolaoluwa, 2014).
REFERENCES
Abbott, L. J., Paker S., & Peters, G. F. 2000. The effectiveness of Blue Ribbon Committee recommendations in mitigating financial misstatement: an empirical study. Working Paper Retrieved from: http://ssrn.com/abstract=84100
Aini, A., Takiah, M. I., Pourjalali H. & Teruya, J. (2007). Earnings management in Malaysia: A study of effects of accounting policy. Malaysian Accounting Review, 5(1), 185-209.
Alaa Zalata, C. R. (2015). Internal Corporate Governance and Classification Shifting Practices An Analysis of U.K. Corporate Behavior. Journal of Accounting, Auditing & Finance.doi/abs/10.1177/0148558X15571736
Alonso,P. A., Palenzuela,V. A.,& Iturriaga, F., J. L.(2000). Corporate boards in some OECD countries: size, composition, committee structure and effectiveness. Dpto. Economía y Administración de Empresas, Universidad de Valladolid, Avda. Valle Esgueva, 6E-47011 VALLADOLID
Alao, D. (2008). The ethics of creative in financial reporting: The challenges of regulatory agencies in Nigeria. Certified National Accountant Journal, Jan-March, Review
Al-Fayoumi, N., Abuzyaed, B. & Alexander, D. (2010). Ownership structure And Earnings management in Emergency Markets. The case study of Jordan. International Research Journal of Finance and Economics, 38, 28-47.
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