CEO discretion, political connection and real earnings management in Nigeria
ISSN: 2040-8269
Article publication date: 28 January 2020
Issue publication date: 18 June 2020
Abstract
Purpose
The purpose of this paper is to examine the influence of CEO discretion on the real earnings management and to explore whether the discretion of the CEO to ensure accurate and reliable financial reports is influenced by the political connection of board members.
Design/methodology/approach
Using the generalized method of movement to control the potential endogeneity on the sample of listed companies in Nigeria, the study conducted several checks using Driscoll–Kraay panel data regression with standard error to robust the main findings.
Findings
The paper provides evidence that CEO Discretion reduces the tendency of real earnings management and improve the reporting quality. However, the CEO’s discretion to provide reliable financial reports and to reduce the likely earnings manipulation is overturn by the presence of politically connected directors.
Originality/value
Existing studies on CEO attributes and earnings management in Nigeria fail to explain why CEOs were involved in corporate financial scandals. This paper suggests that the presence of politically connected directors is what override and upturn the CEO discretion to dwell into real earnings manipulations. Prior studies measured political connection using a dummy variable (Chaney et al., 2011; Osazuwa et al., 2016; Tee, 2018), this paper measured political connection using the proportion of politically connected directors. This is on the idea that the presence of more politically connected directors may give them the power to override the CEOs decision.
Keywords
Acknowledgements
The authors gratefully acknowledged the constructive comment and suggestion of the Chief Editor (Lerong He) and anonymous reviewers that shape and improve the quality of the paper from its earlier version.
Citation
Sani, A.A., Abdul Latif, R. and Al-Dhamari, R.A. (2020), "CEO discretion, political connection and real earnings management in Nigeria", Management Research Review, Vol. 43 No. 8, pp. 909-929. https://doi.org/10.1108/MRR-12-2018-0460
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited