Ishaq Ahmed Mohammed, Ayoib Che-Ahmad and Mazrah Malek

Year: 2019 January, Volume 28 No. 2
Pages: 152–168

Abstract:
This paper explores the heterogeneity of board of directors and shareholders involvement in the audit committee in addressing the question of whether the board of directors and audit committee shareholders are effective in suppressing earnings management after the implementation of 2011 revised Code of Corporate Governance in Nigeria. The paper utilized data generated after the implementation of the new Code. It examines explicitly board effectiveness and audit committee shareholder chairman on earnings management in Nigerian financial institutions. The study utilizes a dynamic panel data model of the generalized method of moment (GMM) in analyzing the data. The empirical results suggest that board independence and shareholders as audit committee chair play an essential and a significant negative relationship in curving earnings management. Specifically, the results show that shareholders played effective roles in chairing the audit committee and suppressing the magnitude of earnings management. The results affirmed that the Big 4 relates to lower earnings management. Regulators should consider increasing the number of years shareholders representatives are to serve in the audit committee to continuously improve the quality of the financial reporting process and suppress managers’ opportunistic behavior.