Corporate governance compliance and accrual earnings management in eastern Africa

Abstract

Purpose The purpose of this paper is to examine whether compliance with corporate governance (CG) requirements has constrained earnings management (EM) for companies listed in Kenya and Tanzania. Design/methodology/approach The sample comprises of 48 companies listed on the Nairobi Stock Exchange and the Dar es Salaam Stock Exchange. The data are collected from annual reports over the period 2005-2014, a total of 480 firm-year observations. Panel data models are used in the analyses. Findings The results show that discretionary accruals (DAs) average about 11.3 per cent, whereas audit quality is negatively and significantly related to DAs. However, board independence, board gender diversity and director share ownership were positively and significantly related to DAs suggesting that CG may not have constrained EM in eastern Africa. Research limitations/implications The findings should be understood within the context that only annual reports and audited financial statements that were filed with Capital Markets Authority (Kenya) and Capital Markets and Securities Authority (Tanzania) are used as source of information. Originality/value The study potentially contributes in three main ways. First, this is the first cross-country analysis that has examined the effect of CG structures on EM in an African context. Second, literature on CG and EM has been extended. Finally, the authors have extended research by observing the limitations of CG in reducing EM in an environment that is experiencing weaknesses in CG structures.

Dividend Policy, Corporate Governance and Earnings Quality: A Case of Non-Financial Listed Firms of Pakistan

“…While (Houqe et al, 2011; Fodio et al, 2013; Jessica, 2020) found a significant positive influence of BS on EQ and favours the larger board for less earning manipulation and good EQ. However (Khafid & Arief, 2017;Waweru & Prot, 2018;Mousa & Desoky, 2019) showed no association between the BS and EQ. Hence the literature has varying results, so based on such association, the following hypothesis is proposed:…”

“…All these researches were performed in developed economies of the world. Furthermore, (Epps & Ismail, 2009; Waweru & Riro, 2013; González & García-Meca, 2014; Hassan & Farouk, 2014;Waweru & Prot, 2018) also found an association between CG and the EQ. These studies argued that the corporate failures around the world were due to earnings manipulation, and it happened in the companies that had weaker corporate governance mechanism, so the management, in turn, can easily mislead the investors by presenting the manipulated earning and the false earning quality (Epps & Ismail, 2009).…”

“…So the researches of (Fodio et al, 2013;González & García-Meca, 2014;Saleem et al, 2016;Khafid & Arief, 2017) indicated that the independent board members have more expertise and performs the monitoring activities more efficiently and can detect the earnings manipulation and increases EQ. While (Hashim & Devi, 2008;Azzoz et al, 2016;Waweru & Prot, 2018) found that the independent directors can't identify the manipulation because they are not involved in daily activities and decisions of business so they don't have any influence on EQ. Hence the following hypothesis is formulated: H 3 : There is a significant impact of board independence on earnings quality of non-financial listed firms of Pakistan.…”

The effect of IFRS adoption on financial reporting quality: evidence from listed manufacturing firms in Ghana

“…had earlier on encouraged researchers to focus their attention on investigating the relationships among IFRS, accounting quality and earnings management in oriental and non-English-speaking countries such as China. This call has trickled down to Africa, with emerging studies on earnings management and financial reporting quality in recent years (see for example, Amidu et al, 2016;Amidu & Kuipo, 2015;Rabin, 2016;Rabin & Negash, 2007;Uwalomwa et al, 2014;Waweru & Ntui, 2018;Waweru & Riro, 2013;Yiadom, 2016).…”

Effect of Chief Executive Officer’s Characteristics on Capital Structure of Publicly Listed Firms in Kenya

“…Notable cases of corporate failure include Uchumi Supermarkets, in 2006, andCMC Kenya Ltd., in 2012. The main reasons attributed to these corporate failures are their inefficient boards and the use of debt in the capital structure (Waweru and Prot, 2018). Although Kenya Capital Authority has enacted and implemented the corporate governance guidelines, there remains a need to determine whether governance mechanisms enhance effective decision making in Kenya, particularly with regard to capital structure.…”