Board Reforms and Earnings Management

Posted: 28 Feb 2022

See all articles by Abongeh A. Tunyi

Abongeh A. Tunyi

The University of Sheffield

Michael Machokoto

University of the Witwatersrand

Daniel Gyimah

University of Aberdeen

Date Written: January 5, 2021


We examine the role of major corporate board reforms around the world in constraining earnings management. Using a large sample of 7,569 listed firms from 19 countries and a difference-in-difference design, we find that board reforms constrain firms' accrual earnings management. However, in response, firms increase their levels of real earnings management, particularly through the reduction of discretionary expenses such as investments in R&D, to address short term earnings pressures. Consequently, specific board reform features (i.e., board independence and rule-based regulations) and external institutions that actively curb accrual earnings management also induce real earnings management. Overall, our evidence suggests that firms with incentives to manage earnings resort to more costly real earnings management when their ability to manipulate accruals is externally constrained. These results have important implications for governance regulation around the world as they contrast with the budding literature suggesting that reforms almost always lead to positive outcomes.

Keywords: Board reforms, real earnings management, accrual earnings management, corporate governance, institutions

Suggested Citation

Tunyi, Abongeh A. and Machokoto, Michael and Gyimah, Daniel, Board Reforms and Earnings Management (January 5, 2021). Available at SSRN:

Abongeh A. Tunyi (Contact Author)

The University of Sheffield ( email )

17 Mappin Street
Sheffield, Sheffield S1 4DT
United Kingdom

Michael Machokoto

University of the Witwatersrand ( email )

School of Economics and Finance
1 Jan Smuts Ave, Braamfontein
Johannesburg, Gauteng 2000
South Africa

Daniel Gyimah

University of Aberdeen ( email )

Dunbar Street
Aberdeen, AB24 3QY
United Kingdom

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