| Summary: | This study investigates the impacts of corporate governance mechanisms
on the occurrence of earnings management activities among retail firms in
the United Kingdom. In this research, the audit committee characteristics
and board characteristics are taken into account and studied by a
quantitative research method and secondary data. Regarding sample
selection, 64 retail companies are chosen from London Stock Exchange
(LSE) in recent four years. The modified Jones model (Dechow et al., 1995)
is applied to estimate discretionary accrual, suggesting the significant
importance of corporate governance practices in mitigating opportunistic
managerial behaviour. First of all, board independence has a positive
influence on constraining earnings management, suggesting outside
directors are likely to discharge monitoring duties and discipline the
management. Besides, the relation of board size with earnings
management practices is negative, supporting that the large size of the
board leads to inefficient monitoring of the board. In addition, a positive
correlation among CEO duality on the occurrence of earnings management
is proved, which means the dual role reduces the monitoring and control
capability of the board. Moreover, audit committee independence is
negatively associated with earnings management, thus suggesting external
executives on the audit committee exercise more effective oversight to
ensure the transparency in financial statements. In contrast, there is no
relationship between audit committee size and the occurrence of earnings
management. This paper provides valuable insights for regulators to
implement corporate governance practices, highlight the important role of
corporate governance mechanisms among retail listed firms in the United
Kingdom.
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