Effect of board size and independence on earnings management of listed consumer goods companies in Nigeria

Abstract

This study investigates the effect of board size and board independence on earnings management within the unique institutional context of Nigeria's listed consumer goods sector. Grounded in Agency Theory, the research examines how these two key board characteristics influence the level of discretionary accruals, which serve as the primary proxy for earnings management. Utilizing an ex-post facto research design, secondary data were collected from the annual reports of 15 listed consumer goods firms over a ten-year period (2013–2022), resulting in 150 firm-year observations. A census sampling method was employed due to the manageable population size, and the data were analyzed using a Random Effects panel regression model, following diagnostic tests that confirmed homoscedasticity and the appropriateness of the random effects estimator., Board Independence have a significant positive relationship with earnings management, Conversely, Board Size was found to have no statistically significant effect on earnings management,. The study concludes that the efficacy of board size and independence is highly context dependent. In Nigeria's emerging market environment, structural governance metrics like board independence may be subject to tokenistic compliance or informational disadvantages that limit their monitoring effectiveness. It recommends that regulators and firms strengthen the effectiveness of board independence through stricter compliance monitoring and improved disclosure practices in order to enhance the board’s oversight role in reducing earnings management practices.