This study investigates the impact of governance variables on the earnings quality based on the industry the firm is in. it has been identified that earnings management have been practised differently by different industries. Most of the research under earnings management have focussed on holistic impacts of corporate governance variables on discretionary accruals while this study has categorised the firms based on what industry they fall on while identifying the impacts of the variables of corporate governance on discretionary accruals. Initially, this paper has studied the estimation of the value of discretionary accruals and identified that performance matched discretionary accruals as the best model as per the explanatory power of the model is higher than other models. Hence, the estimation of the earnings management has been calculated based on performance matched discretionary accruals in this research. This research has studied the impacts of the governance attributes on the earnings management categorising the firms based on the industry they are in; hence, the value of earnings management has been categorically separated; hereafter, the impact of the corporate governance factors on the value of categorically separated earnings management have been statistically analysed. This study has considered the descriptive study to compare the means, medians and standard deviations of the earnings management of various industries. Moreover, Pearson correlations and Spearman rank correlation have been used as a research tool to examine the correlation coefficients.
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.
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 of the earnings management based on the FTSE350, UK. This study has considered the performance matched discretionary accruals to measure the magnitude of the discretionary accruals by considering OLS regression model. The findings of this paper reveal the mixed results as board independence , non-executive director’s fees and block holder have significant impact whereas Board Meeting, the presence of female in the board and board size do not have significant impacts on controlling discretionary accruals. In terms of the estimation of discretionary accruals, there are various models identified in the past. Hence, it is recommended that the models have to be tested and compared regularly to identify the most significant one; to conduct research for a particular market. On the other hand, identifying most effective models to calculate the value of discretionary accruals is quite crucial as most of the researchers are still using Modified Jones’s Model (1995).
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