The Impact of Corporate Governance and Firm-Specific Characteristics on Earnings Management: Evidence from East Africa

Janeth P. Swai


Inthis study we assess the role played by corporategovernance and firm-specific characteristics in determining how firmssubstitute accruals-based earnings management for real earnings management using a sample of forty-four (44) non-financialcompanies listed in East African security markets for ten (10) years from2004-2013. With the use of three models and panel data regressions, wefound that; managers in East Africa also substitute accruals-based earningsmanagement for real earnings management. Moreover, both corporate governanceand firm-specific characteristics play a major role in determining how firmssubstitute the two earnings management strategies. In addition, among realearnings management strategies, sales manipulation is the most commonly usedstrategy in East Africa. These findings have important implications for policymakers, standard setters and regulators such as capital market authorities aswell as other researchers in the region.It helps inform them about the importance of considering both earningsmanagement strategies as well as both corporate governance and firm uniquenessin ensuring the quality of reported financial information.Keywords:Corporate governance, Firm-specificcharacteristics, Accrual-based earnings management and Real activitymanipulation.

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