The effect of corporate governance mechanisms on earnings management: UK Evidence

This study examines the relationship between corporate governance measures and earnings management in UK-listed corporations. While managers must behave in the best interests of shareholders, accounting flexibility permits them to prioritise their own needs. In response to high-profile company failure, the UK’s Cadbury Report (1992) established principles to improve corporate governance, business performance, and investor trust. Board independence, limiting the CEO’s dual function, board diversity, and financial reporting transparency are all important governance elements. This research examines the impact of different proxies of corporate governance, such as audit committee size, board independence, and female board member representation, on earnings management in a sample of 101 (FTSE 100) companies from 2019 to 2022. The findings reveal negative associations between board independence, audit committee size, and the proportion of female board members with earnings management practices. However, these relationships lack statistical significance. Previous studies have used data samples from companies worldwide, but UK-listed companies appear to have been overlooked. This study aims to fill this gap and contribute to the ongoing discourse on the efficiency of corporate governance in mitigating earnings management activities.