Corporate governance and Earnings management: FTSE-100

Huang, Keyu (2007) Corporate governance and Earnings management: FTSE-100. [Dissertation (University of Nottingham only)] (Unpublished)

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This study investigates the interaction between characteristics of corporate governance practice and the practice of earnings management by large UK companies post Enron. A cross-sectional sample of non-financial firms of the FTSE-100 with the rank of 2007 is employed to conduct the research. Based on the prior literature review on this topic, it is hypothesized that there is a relationship between earnings management represented by a measure of absolute discretionary accruals, and corporate governance as reflected by characteristics of the board of directors, the audit committee and the independence of the external auditor.

The findings of the research strongly support for the hypotheses made in this paper. The earnings management is found significantly associated with some attributes of the corporate governance. The result shows that board size, audit committee competence and percentage of non-audit service fee to total audit fee are significantly related with earnings management. However, for other independent variables, proportion of non-executive directors in board, shareholdings held by board and frequency of audit committee meetings are insignificantly related to reducing level of the earnings management.

The findings of this study provide evidence that effective corporate governance can constrain earnings management activities in the UK market. These findings have implications for both regulators and market participants in the identification of which attributes of corporate governance are likely to impact on earnings management, hence improving the level of corporate governance. Furthermore, due to the relative lack of UK research on this topic, this study provides an empirical support to further research in this field.

Keywords: Earnings management; Corporate governance; Internal monitoring; External supervising; Discretionary accruals; Board of directors; Audit committee

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 06 Mar 2008
Last Modified: 27 Sep 2016 17:38

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