CORPORATE GOVERNANCE AND CREATIVE ACCOUNTING PRACTICES IN THE LISTED COMPANIES IN NIGERIA

Abstract

The idea that firms should be ‘governed’ as opposed to just being ‘managed’ is a recent phenomenon that has caught the attention of the stakeholders because of the global financial crisis of 2008. Despite the various governance reforms, the managers take undue advantage of imperfections in the market to manage earnings to the detriment of other stakeholders. This paper empirically studied the impact of corporate governance mechanisms on creative accounting practices in the listed companies in Nigeria. We used a longitudinal design for the study because repeated observation of the same variables are involved (corporate governance mechanisms and creative accounting practices) over a 13-year period (2005 -2017). The study population was 166 listed companies on the Nigerian Stock Exchange as at 31st December, 2017 and 70 companies were selected as a sample, using multi sampling technique. We collected data for the variables from the companies’ annual reports and accounts sourced from African Financials, Nigerian Stock Exchange and individual company websites. The study used descriptive statistics, correlation, OLS regression, panel fixed effects model (FEM) and panel random effects model (REM) for the analysis and hypothesis testing. The outcome of the study revealed that corporate governance mechanisms jointly have a great significant impact on creative accounting practices (CAP) in Nigeria, but the level of impact differs among individual corporate governance mechanisms. Audit committee and gender diversity have negative and significant relationship with creative accounting practices, showing that increase in either of them reduces unethical practices and manipulation of accounting numbers. The ownership concentration has a positive and significant impact on creative accounting practices. However, board size, board independence, managerial ownership and CEO duality are positive and do not have any significant impact on creative accounting practices. The study recommends for the use of both sanctions and moral suasion in compelling compliance with relevant laws, accounting standards and corporate governance codes. In addition, more women participation on the board and audit committee independence should be encouraged.