Earnings management, capital structure, and the role of corporate governance: Evidence from sub‐Saharan Africa

Abstract

This study investigates the effect of earnings management and corporate governance on the capital structure decision of firms. We utilized data of non‐financial firms from selected sub‐Saharan African countries over the period 2008 to 2018. Both fixed and random effect regressions were the methods of analysis employed. Our findings indicate that earnings management is associated with low equity usage and by implication, high leverage levels among firms. Importantly, the presence of corporate governance was found to mitigate the high leverage implication of earnings management. We therefore recommend an improvement in corporate governance practices to minimize the occurrence of earnings management.