Corporate governance and earnings management

Abstract

This research investigates the role of corporate governance in constraining the magnitude of earnings manipulations. Prior research has indicated that there are a number of factors that contribute to the overall effectiveness of corporate governance in an organisation. Using data collected from New Zealand listed companies, this study analyses the effect that the independence of the board directors and independence of audit committees plays in constraining the amount of earnings management. The results from this research show that independent board of directors are more effective at monitoring the discretionary choices of management. The results from this research add to the prior literature on earnings management and corporate governance.