Board structure and financial reporting quality of Nigerian listed deposit money banks

Abstract

Corporate governance is a theory in which management supervision facilitates the decision-making
process, both in public and private organizations. The study investigated the outcome of board characteristics
such as the board size and board composition, audit committee size, leverage, and firm size on
earning management (financial reporting quality) in listed deposit money banks in Nigeria from 1999 to
2018. The study employed a panel regression technique to analyse the relationship between financial
reporting quality and board structure. Also, to determine the appropriateness of the estimation technique
to adopt Hausman tests was carried out. For the determination of earnings management and to separate
nondiscretionary accrual (NDAC) constituents from the total accruals (TA) to arrive at discretionary
accrual (DAC) components, the studies of the Jones model (1991), as modified by Dechow and Sloan
(1995) used. The Hausman test result revealed that Random Effect was the most appropriate estimator,
in line with the null hypothesis. It was confirmed by the Breusch-Pagan Lagrangian multiplier, while the
Breusch-Pagan/Cook-Weisberg test confirmed no heteroskedasticity. Panel regression results showed
that (board size and board composition) has a significant positive impact on financial reporting quality.
However, audit committee size and Leverage have positive but insignificant relation. Besides, firm size
has a significant adverse effect on the dependent variable. In contrast, Leverage has a positive but no impact
on the financial reporting quality of deposit money banks in Nigeria. The inferences are that board
size, board composition,n, and firm size are significant variables influencing Nigeria’s financial reporting
quality. Therefore, the study recommends that banks and regulatory authorities check the excessive
acquisition of assets and numerical increase in audit committee members to enhance commercial banks’
financial reporting quality in Nigeria.

Key words: Board characteristics, Financial Reporting Quality, Deposit Money Banks.