The Moderating Effect of Audit Committee on the Relationship between Board Diversity and Earnings Management of Banks in Nigeria

Document Type : Finance


1 Bayero University Kano Nigeria

2 Ahmadu Bello University, Zaria-Nigeria


Purpose: The increasing need for improved quality of financial reporting is becoming a key challenge for stakeholders in the Nigerian corporate setting because of the consistent failure being witness by many organization. The presence of loan loss provision in the banking sector has paved way for managers to manipulate accounting earnings which has compel the need for this research in order to examine factors that could help mitigate or curtail managers’ tendencies to engage in earnings manipulation. Therefore, the study examine the effect of board diversity and audit committee on earnings management of listed Deposit Money Banks in Nigeria.
Methodology: Board diversity variables include women director, board ownership, foreign director, board size and board composition, while a composite index of audit committee size, composition and meeting was used to moderate two (women director and board ownership) of the board diversity variables. Earnings Management was represented by Chang, Shen and Fang (2008) model. The population consists of fifteen (15) banks and all were used for the analysis. Secondary data were collected from the annual reports and accounts of the banks for the period 2008-2015. Multiple regression technique was adopted and Stata 13 was used as the tool of data analysis.
Findings: The findings revealed that, all the variables before moderation have significant effect on earnings management of banks except for board size. Meanwhile, after moderation, the findings revealed that explanatory variables explained the extent of earnings management better than before moderation. However, among all the explanatory variable used during the moderation, it was only three variables (foreign director, board composition and audit committee) that have significant effect on earnings management.
Practical Implications: Based on the above findings, the study recommended amongst others that the percentage of women director, shares held by directors and number foreign director should be increased, while the number of non-executive directors and audit committee should also be improved upon in order to mitigate the tendencies for earnings management in banks.
Originality: The use of audit committee as moderating variable and the test of applicability and the usefulness of Chang, Shen and Fang (2008) model in Nigerian Banking Sector.