Earnings management and corporate governance: the Ghanaian experience

Abstract

Though a number of studies have been carried out in corporate governance and also on companies listed on the Ghana Stock Exchange, this paper is the first in the country that considers the relationship of Corporate Governance (CG) in relation to Earnings Management (EM). It increases the understanding of EM and its relationship with CG of listed firms. The study used the cash flow approach and the modified Jones model in estimating total accruals discretionary accruals (measure of earnings management). It also employed a panel regression analysis to determine the relationship between earnings management and corporate governance of 14 listed companies from 2002 to 2006. The results indicate an increasing trend of EM for the listed companies. It also shows a significant relationship between some CG attributes such as board size and board independence and EM.

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

“…This implies that as the board gets larger, inefficiencies in the oversight function is increased thereby causing an increase in earnings management and vice versa. This finding is supported by Agyekum, Aboagye‐Otchere, and Bedi (2014), who argue that board size presents a positive effect on earnings management. Thus, firms with larger boards are ineffective in their monitoring role and consequently tend to partake more in earnings management activities.…”

“…Some studies have investigated the effect of corporate governance on earnings management. Agyekum, Aboagye‐Otchere, and Bedi (2014) found that the independence of directors presents negative implications on earnings management. Hence, independent directors help in minimizing the prevalence of earnings management practices among entities.…”

“…Some studies argue that monitoring mechanisms could check opportunistic behavior of management. These mechanisms would therefore control the practice of earning management and enhance the quality of financial information (Agyekum, Aboagye‐Otchere, & Bedi, 2014; Elghuweel, Ntim, Opong, & Avison, 2017; Fiador, 2013; Lawal, Nwanji, Oye, & Adama, 2018). According to Elghuweel, Ntim, Opong, and Avison (2017) and Fiador (2013), good corporate governance systems ensure that management is held accountable for their (in)actions that translates into quality financial reporting.…”