The dissertation examined Earnings Management and Corporate Governance Governance Practices of the firms that are listed on the floor of the Nigerian Stock Exchange. The researcher investigated the published financial statements of all the listed companies across all the sectors of the exchange using empirical quantitative research methods. Al the variables of earnings management were extracted from the published annual financial statements and Directors Annual Reports through Content Analysis. The paper further explored all the variables of corporate governance as published by the Directors in the Annual Reports in the Financial Statements and through a face to face recorded interviews of the members of the Board of Directors, the members of the Audit Committees and the Heads of Internal Audit Functions in the Listed Public Companies.
The study documented that companies that are listed on the Nigerian Stock Exchange are involved in both the upward and downward earnings management practices. This findings cut across all the Sectors and categorization of the companies on the Nigerian Stock Exchange. The research thus recommended the need for better oversight by the Board of Directors, the Audit Committee and the Market Regulators mainly the Security and Exchange Commission and the Nigerian Stock Exchange.
The findings of the Research on Corporate Governance is mixed. In certain sectors, evidence of strong corporate governance are documented as reflected in the quality of Board Members, the Quality of the deliberations at the Board meetings, the independence of the Board, the independence of the Audit Committee and the independence and effectiveness of the Head of the Internal Audit function measured by the reporting line of the holder of this role. In some sectors, the ingredients of strong corporate governance were missing thus suggesting a need for a more stricter regime of corporate governance to be implemented in these corporations.
Table of Contents
1.0 CHAPTER ONE INTRODUCTION
1.1 BACKGROUND OF THE STUDY
1.2 EARNINGS MANAGEMENT IN RESEARCH
1.3 STATEMENT OF THE PROBLEM
1.4 THE PURPOSE STATEMENT
1.5 STATEMENT OF OBJETIVES
1.6 RESEARCH QUESTION
1.7 RESEARCH METHODOLOGY
1.8 THE SIGNIFICANCE OF THE STUDY
1.9 NATURE OF THE RESEARCH
1.10 LEVEL OF ANALYSIS
1.11 STAKEHOLDERS CLASSIFICATION
1.12 CONTRIBUTIONS AND INOVATIONS
1.12.1 Contributions
1.12.2 Innovations
1.13 THEORETICAL FRAMEWORK
1.14 LIMITATIONS AND DELIMITATIONS OF THE STUDY
1.14.1 Limitations
1.14.2 Delimitation
1.15 DEFINITIONS
1.16 SUMMARY OF CHAPTER ONE
CHAPTER TWO- LITERATURE REVIEW
2.0 OVERVIEW
PART A -THEORETICAL FRAMEWORK FOR EARNINGS MANAGEMENT AND CORPORATE GOVERNANCE RESEARCH
2.1 EARNINGS MANAGEMENT AND CORPORATE GOVERNANCE THEORIES
2.1.1 Positive Accounting Theory
2.1.2. Evolution And State Of Positive Accounting Theory
2.1.3 Contemporaneous Positive Accounting Theory
2.1.4 Contribution Of Positive Accounting Theory To The Evolution Of Knowledge On Earnings Management.
2.1.5 Criticisms Of Positive Accounting Theory In Perspective
2.2 CORPORATE GOVERNANCE THEORY: AGENCY THEORY
2.2.1 Agency Theory And Corporate Governance Solutions
2.2.2 Origin And Development
2.2.3 Summary Of Agency Theory
2.2.3.1 Positivist Agency Theory
2.2.4 Agency Cost Theory
2.2.5 Principal-Agent Research
2.2.6 Contributions Of Agency Theory
2.2.7 Agency Theory In Empirical Research
2.2.7.1 Summary of Empirical Studies of Agency Theory
2.2.7.2 Criticism of Agency Theory
PART B REVIEW OF LITERATURE ON CORPORATE GOVERNANCE STUDIES AND EARNINGS MANAGEMENT RESEARCH
2.3 CORPORATE GOVERNANCE
2.3.0 Contemporary Corporate Governance Studies
2.3.1 Definitions Of Corporate Governance
2.3.1.1 OECD Definition of Corporate Governance
2.3.1.2 Financial Times Definition of Corporate Governance
2.3.1.3 Cadbury Report Definition of Corporate Governance
2.3.1.4 BusinessDictionary.com Definition of Corporate Governance
2.3.1.5 Stijn Cleassens Definition of Corporate Governance
2.3.1.6 Keasey and Wright Definition of Corporate Governance
2.3.1.7 Oscar N Onyema- Definition of Corporate Governance
2.3.1.8. Elements and Key Principles of Corporate Governance
2.3.2 The Structure Of Corporate Governance
2.3.3 Determinants Of Corporate Governance
2.3.3.1 LEGAL ENVIRONMENT IN NIGERIA
2.3.3.2 Corporate Governance Environment
2.3.3.3 Operating Environment
2.4 CORPORATE GOVERNANCE MECHANISMS
2.4.1 External Corporate Governance Mechanism
2.4.1.1 Market for Corporate Control
2.4.1.2 Capital Structure
2.4.1.3 Competition
2.4.1.4 The Legal System
2.4.2 Internal Corporate Governance Mechanisms
2.4.2.1 Outcome Based Internal Mechanisms
2.4.2.2 Information Economics Based Internal Mechanisms
2.5 EARNINGS MANAGEMENT RESEARCH METHODS
2.5.1 Introduction
2.5.2 Earnings Management Through Managerial Accounting Choice
2.5.3 Earnings Management through Real Transactions
2.5.4 Earnings Management through Accruals
2.5.4.1 Healy (1985)
2.5.4.2 DeAngelo (1986)
2.5.4.3 Jones (1991)
2.5.4.4 Dechow, Sloan, & Sweeney (1995)
2.5.4.5 The Industry Model
2.5.5 Earnings Management Through Specific Accruals
2.5.6 Earnings Management Through Earnings Distribution Approach
2.5.7 Earnings Management through Income-Smoothing
2.5.8 Summary Analysis Earnings Management Research Methods
2.6 MOTIVATION FOR EARNINGS MANAGEMENT
2.7 EFFECTS OF EARNNINGS MANAGEMENT
PART C REVIEW OF LITERATURE ON THE VARIABLES IN THE RESEARCH OBJECTIVES AND RESEARCH QUESTION
2.8 INTRODUCTION
2.8.0 BOARD GOVERNANCE AND EARNINGS MANAGEMENT
2.8.1 Board Size And Earnings Management
2.8.2 Board Independence And Earnings Management
2.8.3 Board Duality And Earnings Management
2.9.4 Board Meetings And Earnings Management
2.8.5 Institutional Ownership Concentration And Earnings Management
2.8.6 Board Interlocking And Earnings Management
2.9 LITERATURE REVIEW ON AUDIT COMMITTEE
2.9.1 Size Of The Audit Committee And Earnings Management
2.9.2 Audit Committee’s Independence And Earnings Management
2.9.3 Competence Of Audit Committee And Earnings Management
2.9.4 Audit Committee Activities And Earnings Management
2.10 LITERATURE RVIEW ON INTERNAL AUDIT FUNCTION
2.10.1 Internal Audit Function Interactions With Audit Committee And Earnings Management
2.10.2 Internal Audit Function Quality And Earnings Management
2.10.3 Competence Of The Head Of Internal Audit Function And Earnings Management
2.11 COMPARATIVE REVIEW OF LITERATURE ON CORPORATE GOVERNANCE AND EARNINGS MANAGEMENT IN THE UK AND CONTINENTAL EUROPE WITH PARTICULAR REFERENCE TO FRANCE
2.11.1 Earnings Management and Corporate Governance in UK
2.11.2 Earnings Management and Corporate Governance in France
2.11.3 Summary of Comparative Literature Review on UK And France
2.12 CRITQUE OF LITERATURE REVIEW
PART D INTEGRATION AND SYNTHESIS OF LITERATURE REVIEW
2.13 CHAPTER TWO PART A
2.13.1 CHAPTER TWO PART B
2.13.2 CHAPTER TWO PART C
2.13.2.1 Board of Directors
2.13.3.2 Audit Committee
2.13.3.3 Internal Audit Function
2.13.4 Summary Of The Integration And Synthesis Of Literature Review
2.14 SUMMARY OF CHAPTER TWO
CHAPTER 3- RESEARCH METHODOLOGY
3.0 OVERVIEW
3.1 APPROPRIATENESS
3.2 RESEARCH DESIGN
3.3 VALIDITY AND RELIABILITY
3.3.1 Validity:
3.3.2 Reliability
3.4 DATA COLLECTION AND TECHNIQUES
3.5 DATA ANALYSIS
3.6 ETHICAL CONSIDERATION
3.7 SUMMARY OF CHAPTER THREE
CHAPTER 4: PRESENTATION OF THE DATA
4.1 PURPOSE STATEMENT
4.2. REVIEW OF RESEARCH METHOD
4.3 REVIEW OF DESIGN AND DATA COLLECTION
4.4 DATA PRESENTATION FOR CONTENT ANALYSIS
4.4.0 PART A - DATA PRESENTATION FOR CONTENTS ANALYSIS
4.4.1 Introduction:
4.4.2 Statistical Measurement of Earnings Management:
4.4.3 ESTIMATING DISCRETIONARY ACCRUALS (EDA) MODEL FOR 2009
4.4.3.1 Multiple Regression Coefficients:
4.4.3.2 Data Examination:
4.4.3.3 Missing Data Analysis:
4.4.3.4 Outliers Detection:
4.4.3.5 Assumptions of Multiple Regression Analysis:
4.4.3.5.1 Linearity:
4.4.3.5.2 Normality:
4.4.3.5.3 Homoscendasticity:
4.4.3.5.4 Uncorrelated Error Terms:
4.4.3.5.5 Multicollinearity:
4.4.3.6 Pearson Correlation between the Dependent and Independent Variables:
4.4.3.7 Estimating the Regression Coefficients:
4.4.3.8 F Test:
4.4.3.9 The Estimated Discretionary Accrual Model-2009:
4.4.4 ESTIMATING DISCRETIONARY ACCRUALS (EDA) MODEL FOR 2010
4.4.4.1 Missing Data Analysis
4.4.4.2 Identification of Outliers
4.4.4.3 Assumptions of Multiple Regression Analysis
4.4.4.3.1 Linearity Assumption
4.4.4.3.2 Normality Assumption
4.4.4.3.3 Homoscedasticity
4.4.4.3.4 Uncorrelated Error Terms
4.4.4.3.5 Multicollinearity Assumption
4.4.4.5 Estimating the Regression Coefficients
4.4.4.6 Regression Analysis Model Summary
4.4.4.7 F Test:
4.4.4.8 The Estimated Discretionary Accrual Model-2010:
4.4.5 ESTIMATING DISCRETIONARY ACCRUALS (EDA) MODEL FOR 2011
4.4.5.1 Missing Data Analysis
4.4.5.2 Identification and Detection of Outliers
4.4.5.3 Multivariate Regression Assumptions
4.4.5.3.1 Linearity Assumption
4.4.5.3.2 Normality Assumption
4.4.5.3.3 Homoscendasticity Assumption
4.4.5.3.4 Uncorrelated Error Terms
4.4.5.3.5 Multicollinearity
4.4.5.4 Pearson Correlation Coefficients Between the Dependent Variable and Independent Variables
4.4.5.5 Estimating the Regression Coefficients
4.4.5.6 Regression Analysis Model Summary
4.4.5.7 F Test:
4.4.5.8 The Estimated Discretionary Accrual Model-2011:
4.4.6.8 ESTIMATING DISCRETIONARY ACCRUALS (EDA) MODEL FOR 2012
4.4.6.1 Missing Data Analysis
4.4.6.2 Identification and Detection of Outliers
4.4.6.3 Multivariate Regression Assumptions
4.4.6.3.1 Linearity Assumption
4.4.6.3.2 Normality Assumption
4.4.6.3.3 Homoscendasticity Assumption
4.4.6.3.4 Uncorrelated Error Terms
4.4.6.3.5 Multicollinearity
4.4.6.4 Pearson Correlation Coefficients Between the Dependent Variable and Independent Variables
4.4.6.5 Estimating the Regression Coefficients
4.4.6.6 Regression Analysis Model Summary
4.4.6.7 F Test:
4.4.7 ESTIMATING DISCRETIONARY ACCRUALS (EDA) MODEL FOR 2009-2012
4.4.7.1 Missing Data Analysis
4.4.7.2 Identification of Outliers
4.4.7.3 Assumptions of Multiple Regression Analysis
4.4.7.3.1 Linearity Assumption
4.4.7.3.2 Normality Assumption
4.4.7.3.3 Homoscedasticity
4.4.7.3.4 Uncorrelated Error Terms
4.4.4.3.5 Multicollinearity Assumption
4.4.7.4 Pearson Correlation Between the Dependent and Independent Variables
4.4.7.5 Estimating the Regression Coefficients
4.4.7.6 Regression Analysis Model Summary
4.4.7.7 F Test:
4.4.7.8 Estimating Discretionary Accruals (EDA) Model for 2009-2012
4.4.8 Summary of Earnings Management (EDA) Models for Non-Financial Listed Companies on the Nigerian Stock Exchange
4.4.8.1 Estimating Discretionary Accruals for 2009, 2010, 2011 and 2012
4.4.9 SECTORAL PRESENTATION OF EARNINGS MANAGEMENT 2009-2012
4.4.9.1 Earnings Management of Companies in Agriculture Sector
4.4.9.2 Earnings Management of Listed Conglomerates Sector
4.4.9.3 Earnings Management of Firms in the Construction and Real Estate Sector
4.4.9.4 Earnings Management of Listed Companies in Consumer Goods Sector
4.4.9.5 Earnings Management in the listed firms in the Healthcare Sector
4.4.9.6 Earnings Management in Companies Listed in the ICT Sector
4.4.9.7 Earnings Management of Listed Companies in Industrial Goods Sector
4.4.9.8 Earnings Management of Listed Companies in Oil and Gas Sector
4.4.9.9 Earnings Management of Companies in the Natural Resources Sector
4.4.9.10 Earnings Management of Listed Companies in the Services Sector
4.4.9.11 Summary of Sectoral Earnings Management of Nigerian Listed Companies
4.4.10 DATA PRESENTATION FOR CONTENT ANALYSIS: CORPORATE GOVERNANCE
4.4.10.1 Introduction:
4.4.10.2 Corporate Governance Variables and Control Variables
4.4.10.3: Descriptive Statistics of Corporate Governance Variables
4.4.10.4 Data Examination
4.4.10.4.1 Graphical Examination
4.4.10.4.2 Missing Data Analysis
4.4.10.4.4 The Pearson Correlation between the Corporate Governance Variables
4.4.11 INTEGRATION OF DATA PRESENTATION ON EARNINGS MANAGEMENT AND CORPORATE GOVERNANCE
4.4.11.1 Definition of the Research Variables
4.4.11.2 Multivariate Regression Statistical Analysis
4.4.11.2.1 Normality Assumption
4.4.11.2.2 Homoscedasticity Assumption
4.4.11.2.3 Uncorrelated Error Terms
4.4.11.2.4 Multicollinearity Assumption
4.4.11.2.5 Linearity Assumption
4.4.11.3 Summary of Multivariate Regression Statistical Analysis Assumptions
4.4.12 Pearson Correlation between Independent Variables (Corporate Governance Variables) and Dependent Variable (EDA_2009_2012)
4.4.13 Estimating The Regression Model And Assessing The Overall Fit
4.4.13.1 Analysis of the Variate
4.4.13.2 Summary of Regression Analysis
FOLLOW UP INTERVIEWS 4.5 PRESENTATIONS OF DATA FROM SEMI-STRUCTURED INTERVIEWS
4.5 PRESENTATIONS OF DATA FROM SEMI-STRUCTURED INTERVIEWS AND FOLLOW UP INTERVIEWS
4.5.0 REVIEW OF DATA DESIGN AND COLLECTION
4.6 DATA DISTILATION
4.7 CATEGORY ONE- FREQUENCY OF BOARD MEETINGS
4.8 CATEGORY TWO- BOARD OF DIRECTORS’ INFORMAL INTERACTION
4.9 CATEGORY THREE- QUALITY OF BOARD MEETINGS
4.10 CATEGORY FOUR- NOTICE PERIOD FOR CONVEYING A BOARD MEETING
4.11 CATEGORY FIVE- DEGREE OF PREPARATION FOR BOARD MEETINGS
4.12 CATEGORY SIX- FINANCIAL EDUCATION OF NON-FINANCE EXPERT BOARD MEMBERS
4.13 CATEGORY SEVEN- BOARD INDEPENDENCE
4.14 CATEGORY EIGHT- BOARD SIZE
4.15 CATEGORY NINE-BOARD OF DIRECTORS OVERSIGHT ROLES
4.16 CATEGORY TEN- RECRUITMENT OF NEW BOARD MEMBERS
4.17. CATEGORY ELEVEN- MULTIBLE BOARD MEMBERSHIP (BOARD INTERLOCKING)
4.18 CATGORY TWELVE- EFFECT OF BOARD INTERLOCKING
4.19 CATEGORY THIRTEEN- INFLUENCE OF INSTITUTIONAL INVESTORS OWNERSHIP ON CORPORATE GOVERNANCE
4.20 CATEGORY FOURTEEN- BOARD COMMITEES
4.21 CATEGORY FIFTEEN- DESCRIPTION OF THE BOARD CHAIR
4.22 CATEGORY SIXTEEN- AUDIT COMMITTEE CHARTER
4.23 CATEGORY SEVENTEEN- RELATIONSHIP BETWEEN THE AC AND IAF
4.24 CATEGORY EIGHTEEN- IAF ANNUAL WORKPLAN OR ROAD MAP
4.25 CATEGORY NINETEEN- AUDIT COMMITTEE MEETINGS
2.26 CATEGORY TWENTY- AUDIT COMMITTEE MEETINGS SCHEDULING
4.27 CATEGORY TWENTY ONE- INFORMAL INTERACTION BETWEEN AC AND HEAD OF IAF
4.28 CATEGORY TWENTY TWO- APPROVAL PROCESS FOR THE INTERNAL AUDIT CHARTER
4.29 CATEGORY TWENTY THREE- AUDIT COMMITTEE INDEPENDENCE AND COMPLIANCE WITH THE COMPANIES AND ALLIED MATTERS ACT 2004 LAW OF FEDERAL REPUBLIC OF NIGERIA
4.30 CATEGORY TWENTY FOUR- FINANCE EXPERT IN THE AC
4.31 CATEGORY TWENTY FIVE- POLICY ON THE TRAINING OF AC MEMBERS
4.32 CATEGORY TWENTY SIX- AUDIT COMMITTEE SIZE
4.33 CATEGORY TWENTY SEVEN-INTERACTION BETWEEN THE AC AND STATUTORY EXTERNAL AUDITORS
4.34 CATEGORY TWENTY EIGHT-AUDIT COMMITTEES REVIEW OF IAF REPORTS
4.35 CATEGORY TWENTY NINE- THE POWER OF THE AC TO ENGAGE AND DISENGAGE THE HEAD OF INTERNAL AUDIT FUNCTION
4.36 CATEGORY THIRTY- QUALITY OF RELATIONSHIP BETWEEN THE AC AND IAF
4. 37 CATEGORY THIRTY ONE- EXPERIENCE LEVEL OF THE HEAD OF INTERNAL AUDIT FUNCTION
4. 38 CATEGORY THIRTY TWO- PROFESSIONAL QUALIFICATIONS OF THE HEADS OF INTERNAL AUDIT FUNCTION
4. 39 CATEGORY THIRTY THREE- QUALITY OF OTHER IAF STAFF
4.40 CATEGORY THIRTY FOUR-ANNUAL BUDGET OF IAF
4.41 CATEGORY THIRTY FIVE-CONTINUED PROFESSIONAL DEVELOPMENT OF THE HEAD OF INTERNAL AUDIT FUNCTION
4.42 CATEGORY THIRTY SIX- ENGAGEMENT AND DISENGAGEMENT OF THE HEAD OF INTERNAL AUDIT FUNCTION
4.43 CATEGORY THIRTY SEVEN- REPORTING LINE OF THE HEAD OF IAF
4.44 CATEGORY THIRTY EIGHT- ATTENDANCE OF THE HEAD OF IAF AT AUDIT COMMITTEE MEETINGS.
4.45 CATEGORY THIRTY NINE- INFORMAL INTERACTION OF AC MEMBERS AND THE HEAD OF IAF
4.46 CATEGORY FORTY- MEASURING THE INFLUENCE OF EXECUTIVE MANAGEMENT COMMITTEE ON THE ACTIVITIES OF THE IAF
4.47 CATEGORY FORTY ONE- INVOLVEMENT OF IAF IN OTHER ACTIVITIES
4.48 CATEGORY FORTY TWO- APPROVAL LEVEL AND INVOLVEMENT OF AC IN THE IAF ANNUAL WORK PLAN
4.49 CATEGORY FORTY THREE- RESPONSIBILITY FOR THE PREPARATION AND APPROVAL OF INTERNAL AUDIT POLICY MANUAL (IAF CHARTER)
4.50 CATEGORY FORTY FOUR- CONSIDERATION AND REVIEW OF THE WORK OF THE IAD BY THE AC
4.51 CATEGORY FORTY FIVE- QUALITY ASSURANCE FOR IAF WORK
4.52 SUMMARY OF CHAPTER FOUR
CHAPTER FIVE- SYNTHESIS AND INTEGRATION
5.0. OVERVIEW
5.1 REVIEWS OF RESEARCH FINDINGS AND THE RESEARCH OBJECTIVES
5.2. DISCUSSION OF FINDINGS OF QUANTITATIVE RESEARCH
5.2.1 Board of Directors Characteristics
5.2.1.1 Board Size
5.2.1.2 Board Independence
5.2.1.3 Board Meetings
5.2.1.4 CEO Duality
5.2.2 Ownership Structures
5.2.2.1 Institutional Investors’ Ownership
5.2.2.2 Blockholders’ Ownership
5.2.3 Audit Committee Effectiveness
5.2.3.1 Audit Committee Size
5.2.3.2 Audit Committee Independence
5.2.3.3 Audit Committee Meetings
5.2.3.4 Audit Committee Financial Expertise
5.3 DISCUSSION OF THE FINDINGS OF THE SEMI-STRUCTURED AND FOLLOW UP INTERVIEWS
5.3.1 Board of Directors Characteristics
5.3.1.1 Board Meetings
5.3.1.2 Board Independence
5.3.1.3 Board Size
5.3.2 Ownership Structure
5.3.2.1 Institutional Investors Ownership
5.3.3 Audit Committee Effectiveness
5.3.3.1 Audit Committee Size
5.3.3.2 Audit Committee Independence
5.3.3.3 Activities of the Audit Committee
5.3.3.4 Competence of Audit Committee
5.3.4 Internal Audit Function
5.3.4.1 Interaction of the Internal Audit Function and the AC
5.3.4.2 Quality of the Internal Audit Function
5.3.4.3 Competence of Head of the Internal Audit Function
5.4 COMPARATIVE DISCUSSION OF RESEARCH FINDINGS WITH THE EMPIRICAL LITERATURE ON COMPANIES LISTED IN UK AND FRANCE
5.5. MODEL GENERATION
5.6 CONTRIBUTION TO KNOWLEDGE
5.6.1 The Two Layers of SAPEMCG
5.7 SUMMARY OF CHAPTER FIVE
CHAPTER SIX-CONCLUSION AND RECOMMENDATIONS
6.0 REVIEW OF EARNINGS MANAGEMENT AND CORPORATE GOVERNANCE MECHANISMS
6.1 THE SIGNIFICANCE BEHIND THE PRESENT RESEARCH FINDINGS
6.2. POTENTIAL LIMITATIONS OF THE RESEARCH
6.3 CONTRIBUTION TO GENERAL CORPORATE GOVERNANCE AND EARNINGS MANAGEMENT RESEARCH
6.4 RESEARCH VALIDITY AND RELIABILITY
6.5 FUTURE RECOMMEDATIONS
6.6 SUMMARY OF CHAPTER SIX
Research Objectives and Themes
The primary research objective is to examine the influence of internal corporate governance mechanisms on earnings management for companies listed on the Nigerian Stock Exchange. The research aims to evaluate whether internal mechanisms, such as the Board of Directors, the Audit Committee, and the Internal Audit Function, mitigate agency risks and constrain opportunistic earnings management, ultimately contributing to a new, prototypical model for corporate governance in this context.
- The role of the Board of Directors in monitoring management and constraining earnings management.
- The effectiveness of Audit Committees in overseeing financial reporting and internal controls.
- The interaction and quality of the Internal Audit Function as a key internal governance mechanism.
- The use of "Discretionary Accruals" (Modified Jones Model) to measure earnings management.
- Comparative analysis of governance frameworks between Nigeria, the UK, and France.
Excerpt from the Book
1.1 BACKGROUND OF THE STUDY
Financial reporting has a powerful influence on a firm’s full range of activities and decision making by the users of financial information, the shareholders and potential investors. An earning as reported in the financial statements is a key consideration of how investors evaluate the firm, the firm’s financial leverage and how the managers are compensated. There is a strong incentive for managers to adjust earnings figures in order to maintain a desirable level in different contexts. (Rezaei & Roshani, 2012). Rezaei & Roshani (2012) documented that managers can use Earnings Management to deliver some useful and superior information in their possession about the firm’s performance to shareholders, bondholders and long term creditors. In this context, Earnings Management may be harmless to shareholders and the public.
On the other hand, the beginning of the 21st Century has witnessed a number of accounting scandals across the United States and Europe. Goncharov (2005) documented that earnings management is at the core of accounting scandals involving: Enron, HealthSouth, Parmalat, Tyco, WorldCom and Xerox. Rezaei & Roshani (2013) argued that these accounting scandals changed the nature of earnings management towards an opportunistic view. Arya, Glover, & Sunder (2003) documented that, managers have the opportunist behavioral tendencies and often manage earnings for their own benefits and not for the benefits of the shareholders. This finding is consistent with the findings of Hao & Yao (2010) and Jiraporn, Miller, Yoon, & Kim (2008).
Summary of Chapters
CHAPTER ONE INTRODUCTION: This chapter provides an introduction to the research, outlining the study's background, the problem statement regarding opportunistic earnings management, research objectives, and the significance of the study.
CHAPTER TWO- LITERATURE REVIEW: This chapter reviews foundation theories, including Positive Accounting Theory and Agency Theory, and explores existing literature on corporate governance and earnings management research methods.
CHAPTER 3- RESEARCH METHODOLOGY: This chapter outlines the mixed-method research design, including the census and survey techniques, data collection processes, and statistical models used for data analysis.
CHAPTER 4: PRESENTATION OF THE DATA: This chapter presents the empirical results of the quantitative analysis and qualitative findings derived from interviews with corporate governance actors.
CHAPTER FIVE- SYNTHESIS AND INTEGRATION: This chapter synthesizes the study's quantitative and qualitative results, integrating them to formulate the Simon Akinteye Prototypical Model of Earnings Management and Corporate Governance (SAPEMCG).
CHAPTER SIX-CONCLUSION AND RECOMMENDATIONS: This chapter concludes the thesis by reviewing the research findings, identifying limitations, offering recommendations for future research, and summarizing the contributions to the field.
Keywords
Earnings Management, Corporate Governance, Internal Audit Function, Audit Committee, Board of Directors, Agency Theory, Discretionary Accruals, Financial Reporting, Nigeria, Nigerian Stock Exchange, Board Independence, Board Meetings, Ownership Structure, Mixed-Methods Research.
Frequently Asked Questions
What is the primary focus of this thesis?
The thesis investigates the influence of internal corporate governance mechanisms (specifically the Board of Directors, Audit Committee, and Internal Audit Function) on earnings management practices within publicly listed companies on the Nigerian Stock Exchange.
What are the central thematic fields?
The study centers on the intersection of corporate governance, financial reporting quality, and earnings management, utilizing agency theory as a theoretical lens.
What is the primary research goal?
The goal is to develop a conceptual framework or model that effectively constrains opportunistic earnings management, providing practical guidance for firms listed on the Nigerian Stock Exchange.
Which scientific methodology is utilized?
The research employs a mixed-methodology approach, combining quantitative content analysis of annual reports with qualitative data from semi-structured interviews with board members, audit committee members, and heads of Internal Audit.
What is addressed in the main body of the work?
The main body treats theoretical frameworks, reviews literature on earnings management detection methods (such as the Modified Jones Model), and analyzes the relationships between specific corporate governance variables and earnings management, supported by empirical evidence.
What keywords characterize the work?
Key terms include Earnings Management, Corporate Governance, Internal Audit Function, Audit Committee, and Agency Theory, among others.
How is the Internal Audit Function (IAF) defined in this research?
The IAF is viewed as a critical internal mechanism that acts as an "insider channel" for the board, enhancing monitoring and oversight to reduce the likelihood of earnings manipulation.
What is the significance of the "SAPEMCG" model?
The Simon Akinteye Prototypical Model of Earnings Management and Corporate Governance (SAPEMCG) serves as a new, integrated conceptual framework, designed to mitigate agency risks and improve financial reporting transparency in emerging markets like Nigeria.
- Quote paper
- Ademola Akinteye (Author), 2015, Earnings Management and Corporate Governance. An Investigation of Financial Statement Reporting of Publicly Listed Companies in Nigeria, Munich, GRIN Verlag, https://www.grin.com/document/505458
