Earnings management, board expertise, and financial performance of non-financial listed companies on the Ghana stock exchange

Abstract

empirical discussion sought to investigate Earnings Management, Board Expertise, and Financial Performance of Non-financial Listed companies on the GSE. To enable a deeper under understanding of the multidimensionality of firms’ profits and different management intentions to smooth earnings, this study investigated the impact discretionary accruals has on return on asset (ROA). An explanatory design was employed for the quantitative study. Based on criterion sampling, annual reports of 14 non-financial firms were obtained across periods ranging from 2010 to 2019. To deal with the possible issues of persistence in the firms’ profits and endogeneity in the model specification, the two step system generalized method of moments (SGMM) was employed to execute the objectives of the study. Findings from the SGMM reveals that management manage earnings upwards to increase the ROA. The findings correspond with the agency and positive accounting theories. Also, the research finds board expertise to have a significant direct influence on performance. Finally, this study finds board expertise to be an effective moderator between EM and performance. The study concludes that earnings management and board expertise are negatively and positively related with performance respectively. Further, board expertise effectively moderates the relationship between earnings management and performance. Thus, this study recommends shareholders to enhance corporate governance mechanisms and tie incentives with firm values. Other policies for regulators are further discussed.