Can corporate governance mechanisms deter earnings management? Evidence from firms listed on the Nigerian Stock Exchange

Lawal, A. I. and Nwanji, T. I. and Oye, Olubukoye Opeyemi and Adama, Ibrahim Joseph (2018) Can corporate governance mechanisms deter earnings management? Evidence from firms listed on the Nigerian Stock Exchange. AESTIMATIO, THE IEB INTERNATIONA LJOURNAL OF FINANCE. pp. 220-233.

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Abstract

The debate on the impact of corporate governance mechanism on earnings management remains inconclusive. The current paper explored the use of Two Stage Least Square (2SLS) estimation techniques to examine the relationship between the two constructs based on data sourced from listed companies on the floor of the Nigerian Stock Exchange between 2012 to 2016. We excluded financial industry data based on the peculiarity of the sector’s annual financial reporting system. Our results reveal that at best the relationship between corporate governance code and earnings management is mixed. In specific, it shows that governance code exerts negative influence on earnings management, while a positive relationship was observed to exist between earnings management and Insiders ownership. It was also noted that board independence and auditors’ independence has little or no effect on earnings management. The study therefore recommend that in order to curb earnings management practices, governance code of conduct for business entities should be strengthened and compliance should be enforced.

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