Does Corporate Governance Moderate the Relationship Between Earnings Management and Financial Performance?

Authors

DOI:

https://doi.org/10.34190/ecmlg.20.1.2931

Keywords:

Corporate governance, Earnings management, Financial performance, Regression analysis, Sustainable development

Abstract

Motivation: This study aims to fill the gap in the corporate governance literature by examining the moderating role of corporate governance on earnings management and financial performance. Idea: The research is conducted in the light of agency and legitimacy theories, looking through how corporate governance practices moderate the relationship between earnings management and financial performance. Data: The database consists of an international sample of non-financial companies, for the time frame between 2020 and 2023. The data are collected from Thomson Reuters Eikon, and the analysed period responds to a thorough approach of the topic under problematic circumstances. In line with prior literature, this analysis includes several corporate governance mechanisms such as number of board meetings, board gender diversity, board size, CEO duality, independent board members, and audit committee independence. Among the control variables could be mentioned firm size, financial leverage, and profit or loss. Corporate governance is examined as a key driver in achieving financial performance, maximising the value created by companies and strengthening their connections with stakeholders. Tools: To test the research hypotheses, investigation is performed through frequency and descriptive statistics, parametric correlations, complemented with panel regression analysis with random effects performed in STATA 18 software. Findings: According to the results, there is strong evidence that financial performance is impacted by earnings management, at the corporate level. Notably, the main findings suggest that board meetings, board size, and board independence may be underlying factors in reducing the adverse effects of earnings management reflected in financial performance. Likewise, corporate governance may contribute to an effective monitoring of earnings management. Muchmore, the findings are in line with the agency theory, which asserts that corporate governance practices lessen managerial resource exploitation necessary for sustainable development and financial performance. Contribution: Relevance of the study resides in grounding a comprehensive overview in the earnings management and sustainability literature, examining corporate governance patterns. This research contributes to the debate of influence exerted by earnings management practices on financial performance extended towards a better understanding of corporate governance outcomes.

Author Biographies

Andreea Madalina Bojan, Bucharest University of Economic Studies, Romania

Andreea Madalina Bojan is a PhD Student at Doctoral School of Accounting, Bucharest University of Economic Studies, Romania. Her thesis focuses on Challenges and opportunities of corporate governance policies in the post-pandemic period. Current research interests are focused on corporate governance, earnings management, and the challenges from impression management perspective.

Camelia Iuliana Lungu, Bucharest University of Economic Studies, Romania

Camelia Iuliana LUNGU is Professor and PhD coordinator in accounting. She is the Director of Doctoral School of Accounting at Bucharest University of Economic Studies, Romania. Current research interest manifests in following areas: business model innovation, accounting for sustainability, financial and nonfinancial reporting, corporate governance, and accounting education.

Chirata Caraiani, Bucharest University of Economic Studies, Romania

Chirata CARAIANI is Professor at Bucharest University of Economic Studies, Romania and PhD coordinator in accounting. Current research topics are Sustainable business model - approach to human capital and IT governance towards the value creation process; Corporate awareness and behavior in human resources management in the context of economic crisis.

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Published

2024-11-13