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

Veronica Nyatichi; Cyrus Iraya; Mirie Mwangi; James Njihia

Veronica Nyatichi Department of Finance and Accounting , School of Business, University of Nairobi.
Cyrus Iraya Professor, Department of Finance and Accounting , School of Business, University of Nairobi.
Mirie Mwangi Professor, Department of Finance and Accounting , School of Business, University of Nairobi.
James Njihia Professor, Department of Management Science, School of Business, University of Nairobi.

Abstract

Abstract

Purpose: The purpose of the study was to establish the relationship between corporate governance and earnings management of companies listed at the Nairobi Securities Exchange.

Methodology: The study employed a correlational descriptive research design. Panel data methodology that incorporates both time series and cross-sectional analysis techniques was utilised. The study sample included 56 listed companies for period 2008 to 2017 and secondary data was utilised for data collection. The data collected was analyzed through descriptive technique and multiple regression models were utilized to test the hypothesis.

Findings: The study findings revealed that board size had a statistically significant negative effect on earnings management. Overall, the results indicated that corporate governance significantly influeces earnings management of companies listed at the Nairobi Securities Exchange.

Implications: The results imply that for firms to effectively monitor the earnings management practices the size of board of directors should be large.

Value: The study adds value to the regulators of listed companies who develop corporate governance principles by providing evidence on how board of directors is an important component of governance. It specifically guides the regulators to understand that size of board plays a key role in monitoring firm activities.

This paper contributes to the current knowledge in the areas of corporate governance and earnings management practices

Key words: Corporate governance, earnings management, discretionary accruals, board of directors.