CEO discretion, political connection and real earnings management in Nigeria

Abstract

Purpose The purpose of this paper is to examine the influence of CEO discretion on the real earnings management and to explore whether the discretion of the CEO to ensure accurate and reliable financial reports is influenced by the political connection of board members. Design/methodology/approach Using the generalized method of movement to control the potential endogeneity on the sample of listed companies in Nigeria, the study conducted several checks using Driscoll–Kraay panel data regression with standard error to robust the main findings. Findings The paper provides evidence that CEO Discretion reduces the tendency of real earnings management and improve the reporting quality. However, the CEO’s discretion to provide reliable financial reports and to reduce the likely earnings manipulation is overturn by the presence of politically connected directors. Originality/value Existing studies on CEO attributes and earnings management in Nigeria fail to explain why CEOs were involved in corporate financial scandals. This paper suggests that the presence of politically connected directors is what override and upturn the CEO discretion to dwell into real earnings manipulations. Prior studies measured political connection using a dummy variable (Chaney et al., 2011; Osazuwa et al., 2016; Tee, 2018), this paper measured political connection using the proportion of politically connected directors. This is on the idea that the presence of more politically connected directors may give them the power to override the CEOs decision.

Are female CFOs more ethical to the occurrences of financial reporting fraud? Theoretical and empirical evidence from cross-listed firms in the US

“…We argue it is because politically connected CEOs contribute significantly in helping firms to obtain privileges or favourable treatment from the governments (Zhang, 2018; Qian and Chen, 2021). It is in line with our expectation that the political connections between the governments, in this situation as the controlling shareholder, and CEOs often end up in regulatory violations (Latif and Al-Dhamari, 2020; Shin and Ahn, 2021).…”

Board of Directors, Ceo Experience, Ceo Tenure in Three Real Earnings Management Measurement Approaches

“…CEOs with longer tenures will have more experience and knowledge about the company's condition. The results of previous studies showed that CEO tenure positively affects real earnings management (Sani et al, 2020;Qawasmeh & Azzam, 2020;Abbasi & Qomi, 2017). CEOs with longer tenures have the experience and opportunity to take real earnings management actions because they are more accessible and more experienced in knowing the company's condition.…”

“…Likewise, the CEO's experience is predicted to maximize the expertise, knowledge and competencies to optimize company profits (Qawasmeh & Azzam, 2020). The time the CEO has served in a company increases the experience and knowledge, making it easier to manage the company's profit (Sani, Latif, and Al-Dhamari, 2020). The duration of the company's existence and operation reflects its resilience in facing various obstacles and challenges so that it tries to maintain the company's reputation in the future that it tends not to take excessive earnings management actions (Felicya & Sutrisno, 2020).…”

“…The large size of the board of directors is expected to maximize the control function for the company; it can lead to high earnings management because due to the large size of the board of directors, it can also be challenging to coordinate effectively. The experience and tenure of the CEO, which was initially predicted to reduce earnings management actions, also found the opposite result that the length of experience and the high expertise and competence of the CEO can be used to carry out earnings management (Alhmood, Shaari, and Al-dhamari 2020;Sani, Latif, and Al-Dhamari 2020;Qawasmeh & Azzam, 2020;Abbasi & Qomi, 2017). Likewise, the length of the company's age is suspected of earnings management because older companies have sufficient experience and expertise (Khanh & Khuong, 2018).…”

Koneksi Politik, Kompensasi Eksekutif, Financial Distress, Kualitas Audit, Dan Manajemen Laba : Studi Indonesia vs Thailand

“…Penelitian-penelitian sebelumnya menunjukkan hasil yang tidak konsisten mengenai pengaruh koneksi politik pada manajemen laba. Penelitian terkait koneksi politik pada manajemen laba dilakukan Braam et al, 2015;Ding et al, 2018;Apriyani et al, 2019;Sani et al, 2020;dan Liao et al, 2020 yang menemukan bahwa koneksi politik berpengaruh positif terhadap manajemen laba. Namun, penelitian yang dilakukan Putra et al, 2018;Antonius, 2019;Hendi & Ningsih, 2019;dan Junaidi & Siregar, 2020 menyatakan bahwa koneksi politik tidak berpengaruh terhadap manajemen laba.…”