For correspondence:-
Received: 16 October, 2018 Accepted: 30 December, 2018 Published: 31 December, 2018
Citation: Corporate Board and Classification Shifting of Earnings Management: Evidence from Non-financial Firms in Sub-Saharan Africa. Account Tax Rev 2003; 2(4):27-45 doi:
© 2003 The authors.
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Abstract
There is little evidence available on whether corporate board collaborates or substitutes for strict accounting regulation with respect to misclassification of recurring items to non-recurring items. Therefore, this study examined whether corporate board of selected non-financial firms in Sub-Saharan Africa constrains classification shifting. A sample of 75 quoted non-financial firms from three Sub-Saharan African countries (Nigeria, Kenya and South Africa) was used for the period of ten years spanning 2008 to 2017. The study employed ex-post facto and cross-sectional research design in conducting the analysis. The secondary sources of data were collected from the annual reports of the selected firms and were analysed using descriptive statistics, Pearson Correlation analysis and panel regression analysis. Using a sample of 750 Sub-Saharan African firm-year observations, the result revealed that independent director, board female representative and board financial expertise have negative and insignificant effect in mitigating opaque manipulation practices such as classification shifting of quoted non-financial firms. This suggests therefore that strong corporate board tends to act as a substitute for strict accounting standards.The findings showed that about 17% of changes in total variation in the classification shifting of earnings management can be attributed to the joint effect of all the explanatory variables while about 83% was unaccounted for thereby captured by stochastic error term. The study recommends among others, that non-financial firms’ directors should be constituted by more female members and independent persons with high level of integrity that can match words with action to help curb and mitigates classification shifting.
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