Article2022

The impact of board characteristics on the extent of earnings management: conditional evidence from quantile regressions

Muhammad Usman · Jacinta C. Nwachukwu · Ernest Ezeani

44 citations0/0 files storedInternational Journal of Accounting and Information Management

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

Purpose This paper aims to examine the impact of board characteristics on earnings management (EM) among UK non-financial firms. Design/methodology/approach Using a sample of the UK Financial Times Stock Exchange 350 firms from 2010 till 2019, the authors investigated the relationship between board characteristics (board size, board gender diversity, board tenure, board independence, chief executive office-duality and board meetings) and EM by using the quantile regression technique. Findings This study found a non-linear association between board characteristics and discretionary accrual. The empirical evidence showed that board mechanisms reduce the extent of earnings manipulation among UK firms with higher discretionary accruals (DACC) than firms with low and medium DACC levels. Research limitations/implications The results will benefit UK firms by helping them to rethink their board composition. It will also help policymakers understand how the corporate board can help ensure the quality of financial reports. Originality/value This study used the quantile regression approach, which helps to clarify the mixed findings of prior studies that used conventional regression techniques.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1980Agency Problems and the Theory of the Firm 1996Agency costs of free cash flow, corporate finance, and takeovers 1991Earnings Management During Import Relief Investigations 2005Performance matched discretionary accrual measures 1996Higher market valuation of companies with a small board of directors 2002Audit committee, board of director characteristics, and earnings management

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