Title: Audit committee characteristics, board ethnic diversity and earnings management: evidence from Kenya and Tanzania

Authors: Nelson Waweru

Addresses: School of Administrative Studies, York University, 4700, Keele Street, Toronto, Canada

Abstract: This paper investigates the relationship between audit committee characteristics, board ethnic diversity and earnings management in Eastern Africa. We attempt to determine whether compliance with audit committee guidelines has constrained earnings management in companies operating in an environment where control of corruption is considered weak. We include firm performance to the modified Jones model to measure discretionary accruals. The data are collected from annual reports over the period 2005-2014 resulting to a total of 480 firm-year observations. Panel data models are employed in the analyses. The results show that absolute discretionary accruals average about 11.5%, while the independence of the audit committee, the presence of a financial expert on the audit committee and board ethnic diversity were negatively and significantly related to earnings management. We also find that audit committee structures are not country specific.

Keywords: corporate governance; board ethnic diversity; BED; earnings management; discretionary accruals; Kenya; Tanzania.

DOI: 10.1504/IJCG.2018.091271

International Journal of Corporate Governance, 2018 Vol.9 No.2, pp.149 - 174

Received: 14 Mar 2017
Accepted: 13 Jan 2018
Published online: 19 Apr 2018 *

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