Effect of corporate governance board leadership models and attributes on earnings quality of quoted nigerian companies

Abstract

Purpose

This study examined the effect of corporate governance leadership models and attributes on firms’ earnings quality using evidence from Nigerian quoted firms.

Design/Methodology/Approach

This study used an ex-post facto design with a two-stage multiple random and fixed effect regression analyses. A sample of 37 quoted firms in Nigerian Stock Exchange between 2014 and 2018 was selected for the study.

Findings

Relative to unitary corporate leadership, dual board leadership model outperformed and significantly improves earnings persistence and value relevance. Earnings persistence and value relevance increased in boards where CEOs and board chairpersons have equal financial expertise. Also the quality of earnings improved significantly with a good mix of financial expertise and legal skills in the board. Thus, the capital market places a premium on such good leadership attribute mix.

Research Limitation

This study concentrated on non-financial firms in Nigeria. Thus, it should not primarily be generalized as it is context-specific and most applicable among the developing economies

Policy Implication

The implication is that investors can mitigate adverse portfolio selection if they target firms, where both CEOs and board chairpersons have strong accounting and legal knowledge mix. Investors should consider board leadership structures in assessing the overall firms’ earnings quality. Leadership roles separation provides for higher reporting quality.

Originality

This study provides the latest evidence of the effect of board leadership models and attributes on firms’ earnings quality in Nigeria. It makes original contribution to the effect of corporate governance on earnings persistence and predictability and how the market reacts to certain attribute combinations.

Keywords:

• corporate governance
• board leadership models
• chief executive officer
• attributes
• earrings quality

PUBLIC INTEREST STATEMENT

While corporate board leaders like CEOs with good financial knowledge can play a key role in improving the quality of reported earnings, they can apply such expertise for accrual discretion that is hard to detect, which can discount on firms’ earnings quality. Hence, a review of the value relevance of board leadership structures and specific combinations become imperative. A review from emerging economies context shows that such research area has been largely understudied, thus creating literature gaps with implications on portfolio choices. In Nigeria, the literature is scarce hence the need to examine and update how the evidence from emerging economies relates to firms in weak investor protection areas for policy effectiveness. This study focuses on the effect of different board leadership models and attributes on firms’ earnings quality of listed non-financial firms in Nigeria between 2014 and 2018, and the implications on earnings value relevance to the market participants.

Cover Image

Source: Author.

Additional information

Funding

The authors received no direct funding for this research.

Notes on contributors

Cosmas Ikechukwu Asogwa

Cosmas Ikechukwu Asogwa is a PhD researcher in the Department of Accountancy, University of Nigeria, an ICAN member. He researches on corporate governance, and earnings management.

Grace Nyereugwu Ofoegbu

Grace Nyereugwu Ofoegbu is a Senior Lecturer in the Department of Accountancy, University of Nigeria and holds a PhD in Accountancy. She is a Fellow of the Institute of Chartered Accountants of Nigeria (ICAN). She supervised the completion of Cosmas Ikechukwu Asogwa’s PhD thesis on “Effect of Corporate Governance on Earnings Quality of Quoted Nigerian Firms” and this paper is an extension.

Judith Ima Nnam

Judith Ima Nnam is a Lecturer in the Department of Accountancy, University of Nigeria. She holds a PhD in Accountancy, an ICAN member. She researches on financial reporting and accounting information system.

Onyekachi David Chukwunwike

David Onyekachi Chukwunwike is a lecturer in the Department of Accountancy, University of Nigeria, a member of ICAN. He researches on corporate financial reporting and taxation