This paper examines the impact of both, family affiliation and related party transactions tunneling from real activities-based manipulation mediated by audit committee independence based on sample listed non-financial firms Nigeria from 2011 to 2017. The data were obtained from Thomson Reuters DataStream and financial reports of firms. The fixed effects, random effects (GLS), and the generalized method of moments (GMM) were used for panel data regression analysis using the firm internal governance and real earnings management. The findings showed that audit committee independence mediates the relationship between firm internal governance and real earnings management. The results confirm some previous literature that the monitoring role of the affiliated family firms is crucial in mitigating the opportunistic behavior of managers in engaging in real activities manipulation and ensures the earnings quality. However, the analysis of the related party transaction revealed the negative impact on transparency that entrenched managers utilized related parties as a means of tunneling and drained the minority shareholder's interest for the benefit of majority shareholders. In this case, we observed that as family ownership increases, managers engage less in value-destroying behavior because founding family members want to retain trans-generational legacies and care not about short term benefits. Further analysis revealed that leverage has positively impacted on the earnings quality while the firm size was less effective in deterring real earnings manipulation.
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In-Text Citation: (Ibrahim et al., 2020)
To Cite this Article: Ibrahim, G., Mansor, N., & Nasidi, M. (2020). Mediating Effect of Audit Committee Independence on the Link Between Firms Internal Governance Tunneling from Real Earnings Management. International Journal of Academic Research in Business and Social Sciences, 10(2), 195–211.
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