Non-Executive Directors and Earnings Quality: Evidence from Nigerian Listed Firms
Non-executive directors are appointed based on various distinct attributes which are expected to enhance the quality of decision-making and improve the performance of firms. Financial information serves as an important communication tool to various stakeholders’ groups. In extant studies, manipulation of financial information has been associated with managerial opportunistic behavior, hence, the need for non-executive directors. This study explores various attributes of non-executive directors and how these influence earnings quality. The study sourced secondary data from annual reports of listed firms on the Nigerian Exchange Group, which were analysed using the feasible generalized least square method. Directors’ attributes were proxied with expertise, tenure, nationality, shareholdings, and multiple directorship while the modified jones model was employed for earnings quality. The findings revealed that among the attributes of non-executive directors studied shareholdings and nationality significantly affect earnings quality. The study contributes to the literature on the effectiveness and role of non-executive directors. The study result depicts that foreign non-directors are more effective in monitoring the affairs of firms, as well as directors with shareholdings in the firm. This implies that in the appointment of non-executive directors, diversity should be encouraged with provision for stock options.
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