The Impact of Corporate Governance Code on Earnings Management in Listed Non-Financial Firms: Evidence From Kenya

Journal of Accounting in Emerging Economies, 7(4), pp. 428-444, 2017

Posted: 18 Jun 2018 Last revised: 9 Sep 2018

See all articles by Erick Rading Outa

Erick Rading Outa

Independent

Paul Eisenberg

University of Derby; University of Portsmouth

Peterson K Ozili

University of Essex - Essex Business School; Central Bank of Nigeria

Date Written: 2017

Abstract

Purpose – The purpose of this paper is to examine whether voluntary corporate governance (CG) code issued in 2002 constrain earnings management (EM) among listed non-finance companies in Kenya.

Design/methodology/approach – Using a panel data of 338-firm year’s observations between 2005 and 2014, the authors test the hypothesis that CG constrains EM in non-finance firms listed in Kenya. The authors regress discretionary accruals (DA) against a developed Corporate Governance Index (CGI).

Findings – The overall results show that DA is not significantly related to CG suggesting the voluntary CG code does not deter EM in non-finance companies in Kenya.

Practical implications – Evidence of income decreasing/increasing accruals implies EM still exists among the listed firms. This suggests that policymakers may need to consider radical actions including alternative or new CG approaches and new institutions to improve the effectiveness of CG.

Originality/value – This study extends existing studies by including composite CG as possible explanatory variable for constraining EM. The authors contribute to the debate by demonstrating that the voluntary CG code in Kenya is not effective in constraining DA and therefore the current initiatives by the regulator to change the current CG code are appropriately directed.

Keywords: Discretionary Accruals, Corporate Governance, Kenya, Earnings Management

JEL Classification: M40, M41, O16, O55

Suggested Citation

Outa, Erick Rading and Eisenberg, Paul and Ozili, Peterson Kitakogelu, The Impact of Corporate Governance Code on Earnings Management in Listed Non-Financial Firms: Evidence From Kenya (2017). Journal of Accounting in Emerging Economies, 7(4), pp. 428-444, 2017. Available at SSRN: https://ssrn.com/abstract=3189474

Erick Rading Outa

Independent ( email )

No Address Available

Paul Eisenberg (Contact Author)

University of Derby ( email )

Kedleston Road
Derby, Derbyshire DE22 1GB
United Kingdom

University of Portsmouth ( email )

University House
Winston Churchhill Avenue
Portsmouth, Hampshire PO1 2UP
United Kingdom

Peterson Kitakogelu Ozili

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Central Bank of Nigeria ( email )

Plot 33, Abubakar Tafawa Balewa Way
Central Business District, Cadastral Zone
Abuja
Nigeria

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