Effects of board of directors’ composition, ceo power and monitoring costs on real earnings management in Nigeria

This study investigates the effects of board of directors’ composition (size, expertise, meeting frequency, and gender diversity), risk management committee [RMC] attributes (size, expertise, meeting, and membership overlapping), chief executive officer [CEO] power (tenure, education, expertise, ownership, and connections), audit committee [AC] attributes (size, expertise, tenure, and multiple directorships), and monitoring costs attributes (internal audit function, audit costs, and non-executive directors costs) on real earnings management (REM). The data was collected for a period of pre- (2016-2018) and post- (2019-2021) revised Nigerian Code of Corporate Governance [NCCG] implementation of listed non-financial service firms in Nigeria. The Driscoll and Kraay Standard Errors were used in testing the hypotheses. The result of the analysis indicates that the board of directors’ size, expertise, and effectiveness have significantly mitigated the magnitude of REM. Similarly, the study finds that RMC size, expertise, membership overlapping, and RMC effectiveness are significantly associated with lower REM. In addition, CEO power effectiveness (tenure, expertise, ownership, and connections) has a significant negative influence on REM. The study also indicates that AC expertise, tenure, and effectiveness have significantly reduced REM practices. Equally, internal audit function and audit costs have significantly mitigated REM. However, the study establishes that CEO education and AC size have a significant positive influence on REM. The study also finds that board meetings, RMC meetings, AC multiple directorships, non-executive directors’ costs, and monitoring cost effectiveness are insignificantly associated with REM. Hence, the study provides enormous insight to the regulators on the effective role of the revised NCCG 2018. Besides, this study provides an important intuition to shareholders, corporate managers, financial analysts, and academia about the effects of corporate governance mechanisms in mitigating REM. The study contributes to the agency, resource dependence, and upper-echelon theories by demonstrating that these theories are applicable in the context of listed firms in a developing market of Nigeria.