Non-Executive Directors’ Attributes and Earnings Management of Listed Oil and Gas Marketing Firms: Evidence from Nigeria

Non-Executive Directors (NEDs) are considered to be efficient in enhancing corporate governance and business prosperity of companies. Despite many studies on the effect of board attributes on earnings management yet, few studies explored the net effect of non-executive directors’ attributes on earnings management. Thus, objective of the paper was to investigate the effect of non-executive directors’ attributes (fees, meetings attendance, multiple directorships and competency) on earnings management (discretionary accruals) as estimated by Modified Jones (1995) models and performance matched discretionary accruals by Kothari, Leone & Wasley (2005) model. The study used robust Ordinary Least Square regression to analyse 77 firm-year observations of listed oil and gas marketing firms in Nigeria from 2012 to 2017. The study found that fees paid to NEDs have a significant positive impact on earnings management. However, NEDs’ average meetings attendance and multiple directorships were found to have significant negative effect on earnings management. While, competency of the NEDs does not have significant impact on earnings management. Therefore, based on this, the study concluded that, NEDs usually compromise their monitoring role in order to protect their seat to serve for longer tenure when their fees is high and consequently reduce financial reporting quality. It also confirmed that meeting attendance is more guaranteed for effective monitoring than frequent meetings without too much attendance. It is further recommended that the proportion of NEDs holding multiple directorships should be encouraged since directors who serve on more than one board can have more experience and knowledge about corporate board. This experience can be transferred from one board to another and consequently assist them in constraining earnings management. The finding of the study provides an initial insight into the net effect of NEDs attributes (i.e. excluding executive directors) on earnings management. It also considered NEDs fees (which is different from board remunerations) and its relationship with earnings management.