Does Corporate Governance affect Earnings Management? A case study of Deposit Taking Saccos in South Rift Region, Kenya

Abstract

Corporate governance practices are aimed at ensuring organization’s management provides transparent and accountable leadership. However, many Savings and Credit Cooperative Societies in Kenya are experiencing poor performance. The purpose of this study was to establish the relationship between corporate governance and earnings management of selected deposit taking savings and credit cooperative societies in South Rift region, Kenya. The study was guided by Agency theory, Stakeholders theory and Stewardship theory. The study adopted correlation research design in order to establish the relationship between the dependent and independent variable. The target population for the study was all the 12 deposit taking Savings and Credit Cooperative Societies in the counties of South Rift region. Data was analyzed by the use of descriptive and inferential statistics. Findings from the study demonstrated that board characteristics (r=0.522, P<0.05) had a moderate significant relationship with earnings management, audit committee (r=0.859, p<0.05) had a very strong positive correlation with earning management and ownership structure (r=0.689, p<0.05) was second factor which revealed a strong positive significant correlation with earning management of Deposit Taking Saccos in South Rift Region. In general, board characteristics, ownership structure and corporate governance influenced earning management by 70.1% (R2 = 0.701; p<0.05). Following the study findings, it was recommended that Deposit Taking Saccos should embrace effective corporate governance taking into consideration of board characteristics, audit committee and ownership structure. The study findings may be significant to Savings and Credit Cooperative Societies as they will acquire a new knowledge on the important aspect of corporate governance which enhances performance.