Moderating Role of Ownership Concentration on the Relationship between Audit Committee Independence and Earnings Management of Listed Firms at NSE, Kenya
Main Article Content
Keywords
Audit committee independence, earnings management, ownership concentration, corporate governance, Nairobi Securities Exchange (NSE)
Abstract
The financial report should not be deliberately prepared to misinform users. Rather, the statement should provide reliable, relevant, and timely information to assist investors in decision-making. Earnings management reduces the quality of reported earnings and their usefulness for decision-making, as well as lowering investor confidence. It is in this context that the study specifically established the effect of audit committee independence and ownership concentration on earnings management and the moderating effect of ownership concentration on the relationship between audit committee independence and earnings management of listed firms on the Nairobi Securities Exchange, Kenya. The study was guided by agency theory and fraud triangle theory. The study used a longitudinal and explanatory research design, targeting 65 listed firms on the Nairobi Securities Exchange, Kenya. Only 40 firms were surveyed after the inclusion and exclusion criteria for a period of 6 years, giving a total of 240 firm-year observations. The study employed secondary data collection using a data collection schedule. The data collected was analyzed using descriptive and inferential statistics and presented in tables. The regression results revealed that audit committee independence had a positive and significant (β =0.082; P= 0.000) effect on earnings management and that ownership concentration strengthened the relationship between audit committee independence and earnings management (β =0.505; P= 0.000). The study concluded that higher audit committee independence is associated with increased manipulation of earnings and ownership concentration strengthens the positive link between audit committee independence and earnings management.
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Noellyne Munang’kaiy
Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900-30100, Kesses, Eldoret, Kenya
Naomi Koske
Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900-30100, Kesses, Eldoret, Kenya
Ronald Bonuke
Department of Management Science, School of Business and Economics, Moi University, P.O. Box 3900-30100, Kesses, Eldoret Eldoret, Kenya