Search results

This study examines whether the risk management committee (RMC) mitigates earnings management (EM) in Nigeria.

The study used a sample of 365 firm-year observations of Nigerian-listed nonfinancial companies from 2018 to 2022. Driscoll and Kraay’s fixed-effect standard error regression model is used to test the hypotheses.

The study finds that RMC size, expertise, meeting frequency and membership overlapping with the audit committee have a negative effect on both accrual earnings management (AEM) and real earnings management (REM). While RMC independence is found to have a negative effect on REM. Moreover, additional tests reveal that RMC effectiveness is significantly associated with lower EM practices. Further analysis using the industry level finds that RMC attributes mitigate EM practices in some industries. The results remain after rigorous, robust analysis for endogeneity and alternative regressions.

This study is limited to a sample of Nigerian-listed nonfinancial service companies for a period of five years, resulting in the non-generalizability of the findings to different contexts as the countries’ internal policies and regulations varied.

The findings have important implications for regulators, policymakers and investors that a stand-alone RMC can effectively help to evaluate potential risk activities and implement a proper risk management system, thereby mitigating EM practices. The result can help investors, analysts and other stakeholders across the international community in considering RMC information to evaluate potential risk and earnings management practices.

Following the NCCG 2018 reform in Nigeria that requires listed firms to create a standalone RMC, this study is among the earliest that examines the effect of RMC attributes on EM practices and emerging markets. As such, the findings may draw the attention of regulators and policymakers across the African market and the international community to the monitoring role of RMC attributes in mitigating EM practices.

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.

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.

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.

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.