Influence of Corporate Governance Practice on Earnings Quality of Listed Non Financial Companies in the Nigeria Stock Exchange

Abstract

The issuance and application of corporate governance code by capital market authorities are to ensure that boards of directors and managers of companies discharge their responsibilities with utmost sincerity. Studies have reported confounding empirical submissions regarding corporate governance and earning quality via financial information presented to stakeholders. The effect of a big audit as it could modify corporate governance variables and earning quality narrative of listed companies. Thus, the proposition that companies exist to serve the interest of those with a stake in the future of a firm posit by stakeholders theory becomes blurred, especially from the Nigerian Stock Exchange (NSE) context where listed non financial firms are to apply the corporate governance code since 2000. The thrust of this study is thus to examine the influence of corporate governance practices on earning quality. This study uses quantitative research design to evaluate the influence of corporate governance on earning quality of non-financial public listed companies in Nigeria. It specifically tests the effects of outside director, ownership concentration, interlocking directorship, and board size on earning quality of non-financial companies quoted at the Nigeria Securities Exchange (NSE) and its various sectors. The study’s size of 105 companies was obtained after missing data were deducted from a population of 130 non-financial companies quoted at the NSE over the period January 2002 through December 2016. It relies on earnings quality data from the financial statement and on secondary corporate governance data from annual financial statements the NSE. The influence of corporate governance and earnings quality was tested by a panel data linear regression to establish the statistical significance of the earnings quality coefficients at a 95% confidence interval. T-test and F- Statistic at 5% level of significant was used to examine the significance of coefficients of variables in the model. In addition, the study also employed fixed and random effects models for the purpose of addressing the heterogeneity of the sample data. The study rejects the three null hypotheses that corporate governance variables have no effect on earnings quality of non financial quoted public companies in Nigeria and finds out that there is no significant effect of ownership concentration on earnings quality of public companies in Nigeria. It further indicates that there exists a significant statistical effect of outside directors on the earnings quality of listed companies in Nigeria. Furthermore, board size significantly influence earnings quality of listed non financial companies in Nigeria Also, interlocking directorship significantly influences earnings quality in a negative way while audit assurance has a significant moderating negative effect on corporate governance variables and listed companies’ earnings quality. The study recommends that strict regulations should also be put in place by the Nigeria Stock Exchange on the appointment of interlocking directorship and outside directors in Nigeria. Notwithstanding, this study is not exhaustive as it is constrained by fifteen years and above listing period examined; financial quoted companies were not included in the study and only four independent variables measure adopted. Hence, future studies should explore these areas.