Chris Magnis and Skilodimou Louiza

Correspondence: Chris Magnis, magnis@uth.gr

Department of Economics, University of Thessaly, Volos, Greece

pdf (484.67 Kb) | doi: https://doi.org/10.47260/bae/1111

Abstract

This study aims to analyze the impact of corporate governance practices on the earnings quality of 228 firms located in the United Kingdom throughout the period from 2019 to 2022. Our fundamental concept states that there is a negative relationship between the efficiency of corporate governance practices within the organization and the probability of participating in earnings manipulation. The findings of our empirical study offer substantiation for our claims, as they demonstrate that companies with boards of directors marked by notable autonomy and financial capabilities, along with the presence of effective audit and compensation committees, experience an improvement in the quality of their earnings.

Keywords:

  Corporate Governance, Earnings Quality, Board of Directors, Audit Committee, Compensation Committee.

References

Abor, J., 2007. Corporate governance and financing decisions of Ghanaian listed firms. Emerald  Group Publishing Limited, 7(1), pp. 83-92.

Adams, R., 2009. Governance And the Financial Crisis. Finance Working Paper No 248, pp.1-22.

Aldamen, H., Duncan, K., 2016. Does good corporate governance enhance accruals quality during financial crises? Managerial Auditing Journal, 31(4/5), pp. 434-457.

Ali, H., Amin, H.M., Mostafa, D., Mohamed, E.K., 2022. Earnings management and investor protection during the COVID-19 pandemic: evidence from G-12 countries. Managerial Auditing Journal, 37(7), pp.775-797.

Bartov, E., Gul, F., Tsui, J., 2001. Discretionary accruals models and audit qualifications. Journal of Accounting and Economics 24, pp. 3 – 37.

Bruner, C.M., 2011. Corporate Governance Reform in A Time Of Crisis. Journal Of Corporation Law, 36(2), pp.309-341.

Chekili, S., 2012. Impact Of Some Governance Mechanisms on Earnings Management: An Empirical Validation Within The Tunisian Market. Journal Of Business Studies, 3(3), pp.95-104.

Choi, J.H., Kim, J.B., Lee, J.J., 2011. Value relevance of discretionary accruals in the Asian financial crisis of 1997–1998. Journal of Accounting and Public Policy, 30(2), pp.166-187.

Christensen, J., Kent, P., Routledge, J. and Stewart, J., 2015. Do corporate governance recommendations improve the performance and accountability of small listed companies? Accounting & Finance, 55(1), pp.133-164.

Deakin, S., 2010. Corporate Governance and Financial Crisis In The Long Run. Centre For Business Research, University of Cambridge Working Paper No.417, pp.1-29.

Dechow, P.M. and Dichev, I.D., 2002. The quality of accruals and earnings: The role of accrual estimation errors. The accounting review, 77(s-1), pp.35-59.

El Diri, M., Lambrinoudakis, C. and Alhadab, M., 2020. Corporate governance and earnings management in concentrated markets. Journal of Business Research, 108, pp.291-306.

Eng, L.L., Fang, H., Tian, X., Yu, T.R., Zhang, H., 2019. Financial crisis and real earnings management in family firms: A comparison between China and the United States. Journal of International Financial Markets, Institutions and Money, 59, pp.184-201.

Erkens, D., Hung, M. and Matos, P., 2012 Corporate Governance In The 2007-2008 Financial Crisis: Evidence From Financial Institutions Worldwide, Journal of Corporate Finance, 18(2), pp.389-411.

Estrada, M.A.R., Koutronas, E., Lee, M., 2021. Stagpression: the economic and financial impact of the COVID-19 pandemic. Contemporary Economics, 15(Special Issue), p.19.

Gaio, C. and Raposo, C.C., 2014. Corporate Governance and Earnings Quality: International Evidence. Journal of Accounting and Finance, 14(3), pp.52-74.

Ghafran, C., O'Sullivan, N., Yasmin, S., 2022. When does audit committee busyness influence earnings management in the UK? Evidence on the role of the financial crisis and company size. Journal of International Accounting, Auditing and Taxation, 47, p.100467.

Hsu, Y.L., Yang, Y.C., 2022. Corporate governance and financial reporting quality during the COVID-19 pandemic. Finance Research Letters, 47, p.102778.

Jermias, J. and Gani, L., 2014. The Impact of Board Capital and Board Characteristics On Firm Performance. The British Accounting Review, 46(2), pp.135-153.

Jiang, W., Lee, P., & Anandarajan, A., 2008. The association between corporate governance and earnings quality: Further evidence using the GOV-Score. Advances in Accounting, 24(2), pp.191–201.

Jing, L., Richard P., and Roszaini, H., 2008. Intellectual Capital disclosure and corporate governance structure in UK firms, Accounting and Business Research, 38(2), pp.137-159.

Johnson, S., Boone, P., Breach, A. and Friedman, E., 2000. Corporate Governance in The Asian Financial Crisis. Journal Of Financial Economics, 58, pp.141-186.

Jones, J., 1991. Earnings management during import relief investigations. Journal of Accounting Research, 29 (2), pp. 193 – 228.

Kent, P., Routledge, J., Stewart, J., 2010. Innate and discretionary accruals quality and corporate governance. Accounting & Finance, 50(1), pp. 171-195.

Khan, H., 2011. A Literature Review of Corporate Governance. International Conference on E-business, Management and Economics, 25, pp.1-5.

Kirkpatrick, G., 2009. The Corporate Governance Lessons from The Financial Crisis. Financial Market Trends, pp.1-30.

Klapper, L.F. and Love, I., 2003. Corporate Governance, Investor Protection, And Performance In Emerging Markets. Journal Of Corporate Finance, 10, pp.703-728.

Kothari, S.P., Leone, A.J. and Wasley, C.E., 2005. Performance matched discretionary accrual measures. Journal of accounting and economics, 39(1), pp.163-197.

Kumar, N. and Singh, J.P., 2013. Global Financial Crisis: Corporate Governance Failures And Lessons. Journal Of Finance, Accounting and Management, 4(1), pp.21-34.

Lazzem, S. and Jilani, F., 2018. The impact of leverage on accrual-based earnings management: The case of listed French firms. Research in International Business and Finance, 44, pp.350-358.

Lo, K., Ramos, F. and Rogo, R., 2017. Earnings management and annual report readability. Journal of Αccounting and Economics, 63(1), pp.1-25.

Mashayekhi, B. and Bazaz, M.S., 2010. The Effects of Corporate Governance on Earnings Quality: Evidence from Iran. Asian Journal of Business and Accounting, 3(2), pp.71-100.

McNichols, M.F., 2002. Discussion of the Quality of Accruals and Earnings: The Role of Accrual Estimation Errors. Accounting Review, 77, pp.61-69.

Nguyen, Q., Kim, M.H. and Ali, S., 2023. Corporate Governance and Earnings Management: Evidence from Vietnamese Listed Firms. International Review of Economics and Finance, pp.1-59.

Pirson, M. and Turnbull, S., 2011. Corporate Governance, Risk Management, And the Financial Crisis: An Information Processing View. Corporate Governance: An International Review, 19(5), pp.459-470.

Sáenz González, J., García-Meca, E, 2014. Does Corporate Governance Influence Earnings Management in Latin American Markets? Journal of Business Ethics 121, pp. 419–440

Shan, Y.G., 2015. Value Relevance, Earnings Management and Corporate Governance In China. Emerging Markets Review, 23, pp.186-207.

Suffian, M.T.M., Sanusi, Z.M., Osman, A.H., Azhari, M.I.M., 2015. Manipulation of earnings: The pressure of opportunistic behavior and monitoring mechanisms in Malaysian Shariah-compliant companies. Procedia Economics and Finance, 31, pp.213-227.

Susanto, K.Y., 2017. Accrual Earnings Management, Real Earnings Management, Firm Value. International Journal of Business, Economics and Law, 14, pp.1-6.

Zahid, M., 2020. The Impact of Corporate Governance on Earning Quality: Empirical Evidence from Pakistan. Barani Institute of Management Sciences (Bims), pp.33-63.