Does Earnings Management Impact Corporate Governance Disclosure? Evidence of Endogeneity from UK FTSE 100 Firms

The study investigates the impact of earnings management (EM) on corporate governance disclosure (CGD). The results of simultaneous equation modeling analysis using 3SLS estimation, firstly, provide evidence of endogenous (reverse causality and dynamic endogeneity) relationship between EM and CGD, where EM and CGD enhance each other and the previous CGD enhances the current CGD. Secondly, as expected, the used internal auditing characteristics, namely the number of audit committee (AC) meetings and the proportion of independent directors in the AC, influence CGD positively. Thirdly, the internal auditing characteristics interestingly exhibit negative impact on EM. Finally, the study contributes to knowledge by furthering the scant research on the unexplored theme of the impact of EM on CGD; diverting the inquiry from the impact EM on CGD vice versa; and the refinement of the methodological tools.