BOARD INDEPENDENCE, AUDIT QUALITY AND EARNINGS MANAGEMENT AMONG LISTED NON-FINANCIAL COMPANIES IN NIGERIA

Abstract

Driven by agency disputes on real earnings management and board characteristics, this study examines the relationship between board independence, audit quality and earnings management. Using the information of quoted service firms on the Nigerian Exchange Group. The analysis of the data was conducted using multiple regression analysis, utilising a sample of 160 observations from Nigeria, an emerging market spanning from 2014 to 2023. Our results demonstrate that board independence does not mitigate real earnings management. However, we find that Big4 auditor reduces real earnings management and improves the quality of financial reporting. These results show that for a percentage increase of independent directors, the smoothening of earnings decreases while a significant number of services do not engage Big4 auditors in reporting the quality of their financial statements. Especially in a setting where the capital market is still in the process of developing and where legal protection and law enforcement are lacking, the findings of this research could prove to be beneficial to regulators in their efforts to limit the occurrence of earnings management and to enhance financial reporting quality.

Keywords

• Board independence
• Audit quality
• Big4 auditor
• Real earnings management