The effect of board structure on earnings management of companies listed at the nairobi securities exchange

Abstract

Following the significant increase of corporate failures and financial scandals worldwide and collapse of once high profile companies among them Enron and WorldCom in the US, investigations in to the quality and credibility of financial reports and effectiveness of corporate governance mechanisms more precisely the board structure have been carried out. The board structure has a great influence on the performance of the company. In Kenya, corporate failures have been experienced due to weak corporate governance mechanisms within the organizations. This study sought to determine the effect of board structure on earnings management of companies listed at the Nairobi Securities Exchange. The study used a descriptive study that is intended to explain a characteristic behavior of one variable because of another variable. The population of study included 64 listed firms in Nairobi securities Exchange as at 31 December 2014. The study used secondary data. The study used a multiple regression model to establish the relationship between the board structure and earnings management. The study revealed that the size of the board, board independence, board activity, gender diversity, age diversity, ethnic diversity and financial leverage strongly affect earnings management among firms listed in the Nairobi securities Exchange. The study found that size of the board and board independence negatively affects earning management among firms listed in the Nairobi Securities Exchange. The study further established that size of the board, board independence; board activity, gender diversity, age diversity, ethnic diversity and financial leverage were significantly influencing the earnings management among firms listed in the Nairobi Securities Exchange. The study found that board activity, gender diversity, age diversity, ethnic diversity and financial leverage positively affect earnings management among firms listed in the Nairobi Securities Exchange.