Corporate governance mechanisms and earnings management in Nigerian food product companies

Abstract

One of the major challenges facing investors now is how to mitigate earnings management. Therefore, this research paper tries to find out whether this can be achieved through the application of corporate governance mechanisms. A sample of six (6) firms was selected out of eleven (11) firms in the Nigerian food product firms. The data were sourced from yearly report and account of selected firms for a period of twelve years (12), starting from 2003 to 2014. Descriptive statistics and correlation technique were employed in the analysis of data collected. A panel data regression technique was used because the data had time series and cross sectional attributes. It was found that board meeting has negative impact on earnings management; board gender and institutional ownership have negative relationship with earnings management while audit committee meeting has positive impact on earnings management. Size of the firm which is the control variable has positive effect on earnings management. The findings support the application of corporate governance principles as they motivate institutions to ensure that earnings management practice in Nigerian food product firms is adequately supervised. The study adopts agency theory which believes in bringing managers and shareholders to have a common understanding, thereby reducing agency cost. Therefore, the study recommends that institutional shareholdings should be encouraged as this would help to reduce the extent of earnings management in Nigerian food product firms.