Name: Nyatichi, Veronica

Topic: Corporate Governance, Executive Compensation, Firm Characteristics And Earnings Management Of Companies Listed At Nairobi Securities Exchange

ABSTRACT

The objective of this research was to establish relationship among corporate governance, executive compensation, firm characteristics and earnings management of listed companies in Kenya with an aim to resolve research gaps identified in the literature. The gaps are: first, there has been varied conclusions on how corporate governance impacts earnings management. Secondly, there were no insights on how possible intervening and moderating variables influences the relationship between corporate governance and earnings management. Finally, documentation on how corporate governance, executive compensation and firm characteristics influences earnings management is lacking. This study utilized four hypotheses as a means of testing the objectives and a population of 56 companies for the period 2008 to 2017. The main theories that supported this study were agency and positive accounting. In addition, the study adopted positivism philosophy as its focus was on hypothesis testing. Diagnostic tests conducted were serial correlation, stationarity, multicollinearity and homogeneity as a means of testing the model reliability. Multiple linear regression technique was adopted for data analysis. The findings were as follows: corporate governance has a significant effect on earnings management, executive compensation has a partial intervening effect on the relationship between corporate governance and earnings management, firm profitability and firm size moderates the relationship between corporate governance and earnings management and there is statistically significant relationship among corporate governance, executive compensation, firm characteristics and earnings management. Findings of this study adds to the existing knowledge on how corporate governance influences earnings management by revealing that such relationship is not direct and executive compensation, firm size and profitability impacts the relationship. The findings also add to agency and positive accounting theories by providing support on the relevance of having a structure in place that monitors the activities of managers to limit earnings management practices. Since the findings showed that board size influences earnings management, executive compensation mediates the relationship, firm size and firm profitability moderates the relationship such information will help regulators of listed companies when developing guidelines on good corporate governance structure and earnings quality by incorporating key aspects of board of directors, components of executive compensation and elements of firm size. It will also help future researchers by providing basis for theoretical and empirical discussions.