EARNINGS MANAGEMENT AND CORPORATE GOVERNANCE IN NIGERIA
CHAPTER ONE
1.1    BACKGROUND OF THE STUDY
This issue of corporate governance mechanisms and earnings management has received considerable attention in recent years from academics, market participants and regulation. It continues to receive attention due to recent corporate failure that has brought about doubts in the minds of stakeholders on the credibility and reliability of financial report. Earnings management occurs when managers use judgment in financial reporting and in structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company or influence contractual outcomes that depends on reported accounting numbers (Healy & Whalen, 1998).
    After several recent financial scandals, such as WorldCom, Enron or Xerox, there has been an international  movement towards developing and implementing corporate governance mechanisms to fight against the opportunistic  behaviour that have undermined investor reliability in financial information. Separation between ownership and control, will lead managers to manipulate earnings in order to maximize their own interest thus influencing the informativeness of earnings. The kind nature of earning management provides the opportunity to managers to manipulate the financial information of firms in order to get their own benefit. Thus in order to protect the right of the stakeholders, it is vital for an organization to have an effective corporate governance mechanism which can control the asymmetry of financial information.
    In recent year, the extensive consideration given to corporate governance issue suggests that stronger governance mechanisms would reduce opportunistic management behavior, thus improving the quality and reliability of earnings management. Therefore, Good corporate governance by boards of director, and audit committee is recognized to influence the quality of financial reporting which in turn impacts investors confidence. Studies have shown that good governance reduces the adverse effects of earnings management as well as the likelihood of creative financial reporting arising from fraud and errors (Beasley 1996, Dechow 1996; McMullen 1996).
    This study therefore examines the impact of corporate governance mechanisms and earnings management in Nigeria.
1.2    STATEMENT OF PROBLEMS/QUESTION
    Several studies (Osisioma and Enahoro, 2006, Ezeani, 2010, Okike, 2009) have at different times highlighted the presence of earnings management practice amongst firm in Nigeria. These practice include but are not limited to the following; price manipulation, profit overstatement and account falsification have rendered the financial reporting ineffective.
    Uadiale (2012) note that in recent time, a series of well publicized  cases of accounting improprieties in Nigeria (for example, such as is reported in relation to Wema Bank, Spring Bank in Nigeria)  has captured the attention of investors and regulators alike. As a result, there has been a concerted effort to devise ways of reducing the opportunities for manipulation through such efforts as the corporate governance code of Nigeria 2005 and the Blue Ribbon committee of 1999.
    This has brought about the research question:
i)    To what extent does the proportion Executive directors affect earnings management in Nigeria?
ii)    To what extent does the possession of certain level of financial competencies by audit committee member affect earnings management in Nigeria?
iii)    What impact does board size have on earnings management?
iv)    How does the number of board meetings affect earnings management?
1.3    OBJECTIVES OF THE STUDY
    The brand of objective of the study to examine corporate governance mechanism and earnings management in Nigeria. Some of the sub-objectives are listed below:
i.    To examine the extent to which the proportion of executive directors affects earnings management in Nigeria.
ii.    To verify the extent to which possession of certain level of financial competencies by audit committee members affect earnings management in Nigeria.
iii.    To ascertain how the number of board meetings affect earnings management
iv.    To evaluate the impact of board size on earnings management.
1.4    RESEARCH HYPOTHESES
    The hypotheses stated below were tested in order to provide answer to the research questions.
i)    Ho:    Boards with greater proportion of executive directors do not reduce the likelihood of earnings management in Nigeria.   
Hi:    Boards with greater proportion of executive directors reduce the likelihood of earnings management in Nigeria.   
ii)    Ho:    Possession of certain level of financial competencies by audit committee members do not reduce the likelihood of earnings management in Nigeria.
Hi:    Possession of certain level of financial competencies by audit committee members reduces the likelihood of earnings management in Nigeria.
iii)    Ho:    There is a negative impact of board size on earnings management.
Hi:    There is a positive impact of board size on earnings management.
iv)    Ho:    There is a negative relationship between number of board meetings and earnings management.
Hi:    There is a positive relationship between number of board meetings and earnings management.
1.5    SCOPE OF THE STUDY
    This study basically seeks to investigate the relationship between corporate governance mechanism and earnings management among listed firms in Nigeria. To achieve this objective, judgemental sampling technique was adopted toe choose respondents whose jobs are finance and accounting related from companies listed on the Nigerian Stock Exchange whose headquarter are in Lagos state, Nigeria. This study shall be within the durable 2009 – 2011.