The Empirical Study of the Effect of Corporate Governance on earnings management based on FTSE350, UK

Abstract

While the interests of shareholders contradict with the interests of the managers, agency problem appears. However, the principle of the agency theory is to establish the relationship between the shareholders and managers; and this paper relies on the involvement of corporate governance who can resolve the issues between earnings management and the underlying causes. The main aim of this study is to identify the impact of corporate governance on controlling the discretionary accruals based on the FTSE350 by considering the performance matched discretionary accruals model. It has considered the OLS regression model and tested the hypotheses. The findings of this paper reveal the mixed results as board independence, the presence of female in the board, non-executive director’s fees and block holder have significant impact whereas board size and board meeting do not have significant impacts on controlling discretionary accruals.