A MODERATING EFFECT OF BOARD INDEPENDENCE ON SUSTAINABILITY REPORTING AND EARNINGS MANAGEMENT OF QUOTED DEPOSIT MONEY BANKS IN NIGERIAProf. S.M.Aza

Abstract

This study investigates the moderating effect of board independence on the relationship between sustainability reporting and earnings management in quoted deposit money banks (DMBs) in Nigeria. The study adopts an ex post facto research design, analysing a sample of fifteen (15) DMBs listed on the Nigerian Stock Exchange over the period 2013 to 2022. Using the Generalized Method of Moments (GMM) model to address endogeneity concerns, the study provides dynamic panel data estimation based on the Arellano-Bond approach. The results indicate that sustainability reporting has a significant negative relationship with earnings management, implying that enhanced sustainability disclosures contribute to reducing earnings manipulation. Similarly, the interaction between earnings reporting and board independence shows a significant negative effect on earnings management, confirming that independent directors strengthen the role of earnings transparency in curbing managerial discretion. Furthermore, the interaction between sustainability reporting and board independence is also negative and significant, reinforcing the argument that an independent board enhances the monitoring effect of sustainability disclosures. The study concludes that board independence is a crucial governance mechanism that moderates the relationship between sustainability reporting and earnings management, thereby improving financial reporting quality in the Nigerian banking sector. Given the significance of these findings, the study recommends that regulatory bodies, such as the Central Bank of Nigeria and the Financial Reporting Council, implement policies that enhance board independence to ensure financial integrity. Additionally, bank shareholders should advocate for a greater proportion of independent directors to strengthen governance structures that deter earnings manipulation.