Causal Effect Relationship between Audit Committee Composition and Earnings Management among Listed Manufacturing Firms in Kenya: A Panel Fixed Effect Model Analysis
DOI:
https://doi.org/10.17613/rmp2-3846Keywords:
Audit Committee Composition, Earnings Management, Audit Committee Independence, Audit Committee Gender Diversity, Audit Committee Expertise, Audit Committee Size, Audit Committee Age DiversityAbstract
This project aimed to examine the effect of Audit Committee (AC) composition on Earnings Management (EM) among manufacturing firms listed in Kenya. The components of AC targeted included independence, gender diversity, expertise, age and size. The study relied on agency, stewardship and stakeholder theories. The project was based on descriptive design where all the nine manufacturing firms listed at the NSE were used in the study. The research adopted annual secondary data extracted from annual reports of the manufacturing firms. The data covered the period from eight years from 2013 to 2020 and was recorded on data collection sheets. The data in the data collection sheets were entered into a Microsoft Excel sheet. The data was panel in nature covering seven years and nine firms giving rise to 72 observations. The prepared data was exported to STATA version 15 before analysis was carried out. Measures of central tendency and dispersal including standard deviation, mean, kurtosis and skewness were generated to identify outliers and general distribution of data. Tests of OLS regression assumptions were carried out to enable the choice of the most suitable model of analysis. Finally, panel data regression was adopted. The coefficient of determination was 0.7531 implying that Audit committee composition explains 75.31% of the total variation in earnings management. The study further revealed that AC Independence, gender diversity and expertise had a significant inverse effect on EM. AC size had a direct and significant effect on EM. The effect of AC age diversity on EM was direct and significant. The study concluded that AC composition had a critical role in minimising EM among the firms studied.
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Copyright (c) 2024 Mark Okeyo Okeyo , Dr. Winnie Iminza Nyamute (PhD) (Author)
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