Effect of Board Structure on Earnings Management in Listed Consumer Goods Companies in Nigeria

Abstract

This study examines the effect of board structure on earnings management among listed consumer goods companies in Nigeria. Drawing on agency and complementary governance theories, the study investigates how key board attributes; board size, board independence, board members’ financial expertise, multiple directorships, and board gender diversity individually and collectively influence earnings management. Using an ex-post facto research design and a quantitative approach, panel data were obtained from the annual reports of 16 firms over the period 2006–2022. The study employs Panel Corrected Standard Errors (PCSEs) regression to address cross-sectional dependence, heteroscedasticity, and serial correlation inherent in panel data. The findings reveal that board structure variables jointly have a significant effect on earnings management, confirming the importance of governance mechanisms in financial reporting quality. However, the results show mixed effects at the individual level where board size and board independence exhibit positive but statistically insignificant relationships with earnings management. In contrast, board members’ financial expertise has a positive and significant effect, suggesting that expertise could be associated with increased ability to manage earnings. Conversely, multiple directorships and board gender diversity demonstrate significant negative effects, indicating their effectiveness in reducing earnings manipulation. Thus, the study recommends that Consumer goods companies in Nigeria should as a matter of urgency prioritize enhancing the financial expertise of board members as well as promoting gender diversity on the board because the findings indicate that board members with financial expertise have a statistically significant impact on reducing earnings management. Therefore, management should actively seek to appoint directors with relevant financial qualifications and experience, particularly in accounting, auditing, or financial reporting to improve their ability to critically assess financial decisions, identify potential manipulations, and ensure transparency in financial reporting. Additionally, gender diversity has shown a highly significant negative impact on earnings management, implying that the management should implement policies to increase female representation on the board because a more gender-diverse board could introduce varied perspectives, enhance decision-making processes, and lead to better governance practices focused on reducing earnings manipulation.