CORPORATE GOVERNANCE AND EARNINGS MANAGEMENT: EMPIRICAL EVIDENCE
FROM NIGERIA BANKING SECTOR
        ABSTRACT
This study is motivated by a desire to examine earnings management and corporate governance in the banking sector. In light of the empirical review and other discussions, a number of questions arose as to whether there is relationship between earnings management and corporate governance mechanisms. Using the Ordinary Least Square (OLS) regression technique with the aid of computer software, the empirical findings revealed among other things that there is no significant relationship between earnings management and corporate governance mechanisms in the banking sector. Recommendations were however made by the researcher.
                    TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the Study                    
Statement of the Research Problem                    
Aims and Objectives of the Study                     
Research Hypotheses                        
Scope of the Study                        
Significance of the Study                                              
Limitations of the study                        
Definition of Terms                        
CHAPTER TWO: LITERATURE REVIEW
Introduction                            
Meaning of Earnings Management                    
Corporate Governance Measures in Nigeria                
Corporate Governance Mechanisms                    
Determinants Of Earnings Management                 
Conceptual Framework of Earnings Management        
Effects of Earnings Management                
Previous Studies on Earnings Management and Corporate
Governance                         
Detecting Earnings Management                 
Earnings Management Measurement             
References                             
CHAPTER THREE: RESEARCH METHODOLOGY
Introduction                             
Population of the Study                         
3.3    Sample/Research Design                    
3.4    Model Specification                    
References                                
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
Introduction                    
Presentation of Results                        
Descriptive Statistics                        
Analysis And Interpretation of Panel Regression Results    
Hypothesis Testing                        
CHAPTER FIVE:    SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
Introduction                            
Summary of Findings                        
5.2    Conclusion                              
Recommendations                        
Bibliography                             
Appendix                                 
CHAPTER ONE
INTRODUCTION
Background to the Study
    The main objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions (Gowthorpe, 2005). There are several groups of users of financial statements such as investors, employees, lenders, suppliers, customers, governments and the last but  not the least the general public. All these groups are important, however priority is usually awarded to investors and their information needs because they provide risk capital to companies. Therefore, it is management’s duty to provide timely and accurate information to all these groups about the company’s financial status (Maher, 2008).  The management usually wants to prepare their financial statements in such a way as to show that the firm is performing well in order to meet the expectation of the shareholders and investors. Preparers of financial statements are in a position to manipulate earnings and alter the view of economic reality and therefore mislead financial statement users. Levitt (1998) observes that the integrity of financial reporting has been of concern among regulators and practitioners, especially after scandals involving large companies such as Enron.  Earnings management has also been a concern of regulators and practitioners for several years because it erodes the quality of financial reporting. Bitner (2002) opines that the main motivator for earnings management is greed.
    According to Healy & Wahlen (1999) earnings management is the alteration of firms reported economic performance by insiders to either ‘‘mislead some stakeholders’’ or to ‘‘influence contractual outcomes’’. For instance, management can use their discretion in financial reporting to overstate the true level of earnings and hide unfavorable earnings realizations such as earnings losses or earnings decreases that would prompt outsiders to take action against insiders. In the presence of extensive earnings management, financial reports inaccurately reflect firm performance and consequently weaken outsiders’ ability to govern the firm (Leuz, Nanda, & Wysocki, 2003).  Thus, there have been calls for strengthening corporate governance mechanisms to enhance the oversight function of the board of directors and to restore public confidence in the integrity of financial reporting. The Security and Exchange Commission (SEC) promulgated the Nigerian Corporate Governance Code in 2003. This code requires companies listed on the Stock Exchange to appoint independent directors and supervisors, including at least one financial expert, and to establish an audit committee.
     In the light of the forgoing background, this research attempts to empirically examine the impact of corporate governance and earnings management in the banking sector.
Statement of the Research Problem    
    The extent to which earnings are manipulated has long been of interest to analysts, legislators, researchers, and other investment professionals. Teoh, Welch & Wong, (1998) observe that companies manage their earnings prior to its public securities' offering and when it is in financial distress.    Where the management of the firms manipulate earnings to show favourable financial positions it adversely affects the performance of the firm and hence the value of the firm to shareholders. These are evidence of weak corporate governance and profitability of the firm. Healy, (1985) opines that if managers’ compensation is tied to company's profitability, the quality of the information contained in the financial reports would be questioned, especially if it is extremely favorable. When there are some doubts about the reliability of a company's qualitative financial disclosure, we may turn our attention to the auditor's report.
    The main research problem will be broken down into sub-problems stated as research questions, which guided the study. Attempts were made in the course of the research to resolve the following questions which were raised:
1.    Does the composition of the board have a significant impact on earnings management in the banking sector?
2.    Does the size of the board have a significant impact on earnings management in the banking sector?
3.    Is there a significant relationship between directors with financial expertise on the audit     committee and earnings management?
4.    What is the relationship between concentrated ownership and earnings management in the banking sector?
5.    Does the size of the firm have a significant impact on earnings management in the banking sector?
Aims and Objectives of the Study
The main aim of this research is to empirically examine the impact of corporate governance and earnings management in the banking sector. The research work would attempt to achieve the following objectives.
1.    To find out if the composition of the board have a significant impact on earnings management in the banking sector.
2.    To know if size of the board has a significant impact on earnings management in the banking sector.
3.    To know if there exist a significant relationship between directors with financial expertise     on the audit committee and earnings management.
4.    To examine the relationship between concentrated ownership and earnings management in the banking sector.
5.    To find out if the size of the firm has a significant impact on earnings management in the banking sector.
Research Hypotheses
The following research alternative hypotheses will be stated and tested in this research:
Hypothesis 1
Ho:    The composition of the board has no significant impact on earnings management in the banking sector.
H1:    The composition of the board has a significant impact on earnings management in the banking sector.
Hypothesis 2
Ho:    The size of the board has no significant impact on earnings management in the banking sector.
H1:    The size of the board has a significant impact on earnings management in the banking sector.
Hypothesis 3
Ho:    There is no significant relationship between directors with financial expertise on the audit committee and earnings management.
H1:    There is a significant relationship between directors with financial expertise on the audit committee and earnings management.
Hypothesis 4
Ho:    There is no positive relationship between concentrated ownership and earnings management.
H1:    There is a positive relationship between concentrated ownership and earnings management.
Hypothesis 5
Ho:    The size of the firm has no significant impact on earnings management.
H1:    The size of the firm has a significant impact on earnings management.
Scope of the Study
The subject matter of this study will be limited to the impact of corporate governance on earnings management in the banking sector. The study focuses on some selected banking sectors listed in the Nigeria Stock Exchange (NSE). The firms will be chosen in order to get the effect of corporate governance on earnings management. Thus this study is a panel study and would use the financial statement of the selected banking sectors from the year 2009 - 2011.
Significance of the Study
    The findings and recommendations of this research would ensure the following:  The study aims to provide additional insights into the relationship between corporate governance mechanisms and earnings management in Nigeria.  It is hoped that the evidence would serve as important quantitative information into the cauldron of policy as well as add to the existing body of empirical literature from a developing stock exchange such as that of Nigeria. The need for a study of this kind is even more important in an environment like Nigeria, which is characterized by growing calls for effective corporate governance, particularly for public limited liability companies. This call is understandable in view of the importance of effective governance at both microeconomic and economy-wide levels. It also has some implications for the ongoing privatization program that the Government of Nigeria is currently undertaking.  Moreover, by helping to promote firm performance and the protection of stakeholder interest, corporate governance encourages investment and stock market development. The study will also act as a guide for future researchers.                                                                  
Limitations of the study
    The limitations of this study include the fact that it deals only with Benin City, the results of which one cannot easily generalize for the country. Secondary data were the main instruments used to gather information with its attendant problems.        
 Time and funds were the constraints to covering a wider area of undertaking a more detailed analysis of the subject matter.
Definition of Terms
Corporate Governance:     Is the system by which business corporations are directed and controlled.
Earnings Management:     Manipulation of a company’s financial earnings either directly or through indirect accounting methods. This is more likely to occur when a company habitually is unable to meet investors’ expectations or in periods of volatile earnings.