CORPORATE GOVERNANCE, FIRM CHARACTERISTICS AND EARNINGS MANAGEMENT OF COMPANIES LISTED AT NAIROBI SECURITIES EXCHANGE

Abstract

The relationship between corporate governance and earnings management may not be
direct due to the varying characteristics of firms. The objective of the research was to
establish the moderating influence of firm characteristics ( size, leverage and profitability)
on the relationship between corporate governance and earnings management of companies
listed at the Nairobi Securities Exchange. This study utilized hypotheses as a means of testing
the objective and a sample of 56 companies for the period 2008 to 2017 was selected. Panel
data methodology was adopted and correlational descriptive research design. The sample
entailed 517 firm year observations. The findings revealed that firm profitability and firm
size moderates the relationship between corporate governance and earnings management
while leverage has no significant effect on the relationship. The findings contribute to the
debate of corporate governance effectiveness as it is evident that despite the board of
directors composition, size of firm and its profitability influences the managers engagement
in earnings management practices.