Corporate Governance Mechanisms and Earnings Quality in Nigerian Commercial Banks: An Empirical Investigation

The quality of earnings reported by Nigerian commercial banks is a critical metric of financial reporting integrity, and the role of corporate governance mechanisms in shaping earnings quality represents an important gap in the empirical banking literature. This study empirically investigates the effect of corporate governance mechanisms on earnings quality in Nigerian commercial banks for the period 2013 to 2022. Earnings quality was measured by the absolute value of discretionary accruals estimated from the modified Jones model, accrual persistence, and the variability of cash flows versus accounting income. Corporate governance was operationalised by board size, board independence, audit committee expertise, CEO tenure, and institutional ownership concentration. Secondary data were sourced from the annual reports of fourteen commercial banks. Panel data regression with the generalised method of moments estimator was employed to control for endogeneity. Results showed that board independence significantly reduced discretionary accruals (coefficient = -0.028, p < 0.01), improving earnings quality. Audit committee financial expertise was a significant positive predictor of accrual persistence (coefficient = 0.041, p < 0.05). CEO tenure beyond seven years was associated with higher discretionary accruals, consistent with entrenchment theory. Institutional ownership had a non-linear relationship with earnings quality, improving it at moderate concentration levels but worsening it at very high concentration. The study concludes that board independence and audit committee expertise are the most impactful governance mechanisms for improving earnings quality in Nigerian commercial banks, filling a gap in domestic empirical governance-earnings quality research. Keywords: corporate governance, earnings quality, discretionary accruals, board independence, Nigerian commercial banks