CORPORATE GOVERNANCE AND EARNINGS MANAGEMENT : EMPIRICAL EVIDENCE FROM MALAYSIAN AND NIGERIAN BANKS

Abstract

The objective of this study as a pioneer is to investigate the likelihood of virtually all key elements of corporate governance in reducing the scope of banks earnings management in both developed and emerging economies. The Modified Jones Model is explored to investigate earnings management. Investigations into the differences in key corporate governance structure including board independence, composition, size, frequency of board meeting, leadership independence, audit committee existence and size, audit committee chairman independence, frequency of audit committee meeting, separation of roles of chairman of board and CEO, auditors status, Basel II compliance were equally made. The sample of this study consists of all the listed Nigerian banks and Malaysian commercial banks for year 2007- 2011. For Nigerian banks the earnings management has a negative mean, which means that the total accrual was negative in the majority of the sample. On the other hand, total accruals have a positive mean for Malaysian sample banks. Consequently, the residual value in the equation (e t) was higher for Nigerian banks compared to Malaysian banks, indicating respectively, lower/higher accruals and earnings quality. Key aspects of corporate governance have positive or negative association with earnings management. While these are mostly lacking in Nigerian banks’ corporate governance structure, resulting in the poor accrual and earnings quality, high accruals and earnings quality of Malaysian banks is traceable to good corporate governance.

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