Earnings management and corporate governance

Abstract

The main aim of this study is to investigate whether UK firms manage
the practice of earnings management or not also it investigates the effect
of corporate governance characteristics in reducing earnings management.
The motivation of this research is to what extent of exploratory variables
of corporate governance has effect in reducing the practice of earnings
management in sample of this study. Data collected from companies
listed on London Stock Exchange during 2012. Sample included 50
companies. The study employs the same model as was used by Dechow et
al. (1998) to measure earnings management through real activities
manipulation. On the other hand, this study used four independent
variables to test the effect of corporate governance in reducing earnings
management.
The results show only a very low incidence of earnings management in
the majority of firms in the sample: Furthermore, the results show there is
significant negative relationship between earnings management and firm
size although, the correlation is weak. However. In addition, this study
found that there is just one independent variables which is bind has
positive relationship with earnings management but the relationship is not
significant