Ownership Concentration and Earnings Management of Listed Manufacturing Firms in Nigeria: Audit Committee Financial Expertise

Abstract

Significant corporate shareholders can exert undue pressure on managers to enhance earnings in order to increase corporate value, and that as a result of this undue pressure, managers to resort to earnings management practice in the corporations they manage. This study examined the moderating role of audit committee expertise on the relationship between ownership concentration and real-earnings management in Nigeria. The independent variable (ownership concentration) was measured as shareholders who have more than 5% equity stake in a company, and real-earnings management was measured using the Roychowdhury approach. Audit committee financial expertise which is the moderator, was measured in binary form, 1 if at least one member of the committee has accounting experience, and 0 otherwise. This paper used a sample of 34 manufacturing companies listed on the Nigerian Exchange (NGX) over a period of 15 years from 2007 to 2021. Data was collected from the annual financial reports of the sampled companies. Descriptive statistics, Pearson correlation and Quantile regression was employed for data analysis and the findings show OWNCON has a positive and insignificant effect on REM. However, when audit committee financial expertise was used as a moderator, the effect of ownership concentration on the real- earnings management of listed manufacturing companies in Nigeria became statistically significant. Based on the findings, the study recommends that manufacturing companies should have more concentrated owners because the higher the concentration the less tendency of REM of listed manufacturing companies in Nigeria.