Original Research Article | OPEN ACCESS

CORPORATE GOVERNANCE AND EARNINGS QUALITY: EVIDENCE FROM DISTRESS LIKELIHOOD QUOTED FIRMS

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Received: 13 Oct 2017        Accepted: 14 Dec 2017        Published: 31 Dec 2017

Citation: CORPORATE GOVERNANCE AND EARNINGS QUALITY: EVIDENCE FROM DISTRESS LIKELIHOOD QUOTED FIRMS. Account Tax Rev 2002; 1(1):55-82 doi:

© 2002 The authors.
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Abstract

The study is a longitudinal survey of quoted non-financial firms with the likelihood of being distressed, unlike most previous studies that neglect distress as a potential reason for earnings quality. The total quoted firms in Nigeria Stock Exchange as at December 2016 is 178 which constituted the population of the study out of which a target population of 96 non-financial quoted firms were considered for the study while the sample size of 84 out of the 96 quoted non-financial firms with Altman’s Z-Score of less than 1.8 were studied within a period of 2011 to 2016 for the study. Purposive sampling technique was employed in selecting sampled firms that fell below the required standard. Historical data were obtained from the financial statements and accounts of sampled firms. Corporate governance variables were regressed on the dependent variables, namely, Earnings quality using Jones Model (JMODEL) and Modified Jones Model (MJOHNES) while pooled data regression was employed. The findings revealed that Chairman Ownership (CAMSH), CEO ownership (CEOSH) and Directors Ownership (DHOLD) were statistically significant, while Board Size, Board independence and Board gender have no significant effect on earnings quality of likelihood distress companies in Nigeria. The study, therefore, recommends that companies should not expand the Board size of likelihood distress companies as a means to managing earnings quality; Board chairman and CEO shares ownership should be discouraged for likelihood distress companies if reduced earnings management tendencies are to be checked. Board gender, if correctly used, can help to reduce earnings management in likelihood distress companies.

JEL Classification: G340

Keywords: Corporate governance, Earnings management, Chairman Ownership, Board gender, Board size.