Board Structure of Corporate Organizations and Earnings Management: Does Size and Independence of Corporate Boards Matter for Nigerian Firms?

Abel Oghenevwoke Ideh,Edirin Jeroh,Orits Frank Ebiaghan

doi:10.5430/ijfr.v12n1p329

Abel Oghenevwoke Ideh, Edirin Jeroh + Show 1 more

Open Access

https://doi.org/10.5430/ijfr.v12n1p329

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Abstract

The relationship subsisting between board structure of corporate organizations and earnings management has attracted several concerns particularly to regulatory agencies, management, accounting practitioners and researchers alike. Therefore, this study, examined the extent to which board independence and size influence the level of earnings management of publicly quoted Nigerian firms. For this purpose, the adoption of the International Financial Reporting Standards (IFRS) and the age of firms were introduced as mediating variables. Secondary data were however pooled from the financial statements of ninety-two (92) firms cutting across ten (10) industrial sectors from 2007–2018 (12 years). The regression analysis amidst other relevant statistical techniques was adopted to analyze the collated pooled data. Evidence from our result indicates that with the introduction of IFRS adoption and firm age as mediating variables, the Fcal obtained was 1.72 (p-value = 0.1424), thus indicating that the size of boards and the presence of independent directors (board independence) in corporate boards could not significantly influence the level of earnings management in Nigerian firms. We therefore recommend that in order to regulate managements’ opportunistic behavior/earnings management, regulators and stakeholders who are charged with the task of performing oversight functions on the activities of management should lay more emphasis on ensuring that preparers of financial statements fully comply with the provisions of IFRS and other regulatory requirements for financial reporting.

Highlights

Organizations strive to be effective in maintaining improved levels of performance and enhanced firm value over time
In order to unveil a possible reason for the conflicting results of prior studies, this current study evaluated the moderating effect which International Financial Reporting Standards (IFRS) adoption may have on the relationship between board independence and earnings management among publicly quoted companies in Nigeria
This research focused on assessing whether board size and independence play significant role in explaining levels of managements’ involvement in opportunistic behaviour/earnings management

Summary

Introduction

Organizations strive to be effective in maintaining improved levels of performance and enhanced firm value over time. Prior studies have drawn a link between the presence of efficient corporate boards and firms’ performance with particular reference to the moderation of cost of capital, intensification of firm value and the enhancement of risk controls, which invariably lends credence to the quality of financial reporting, sustainable growth and the reduction of opportunistic behavior of managers (Akpan & Amran, 2014; Obigbemi, Omolehinwa, Mukoro, Ben-Caleb & Olusanmi, 2016). The structure of corporate boards constitutes a fundamental attribute that exemplifies the core boundary of in-house governance. This could be the reason why Arosa, Iturralde and Maselda (2013) averred that firms’ aggregate performances could be substituted with changes in their respective board structures. Studies had pointed that managers may sometimes be involved in opportunistic actions such as the deliberate alteration of financial statements’ contents possibly to conceal the actual economic conditions of companies for private gains or other purposes

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