Corporate governance and earnings management in the Ghanaian banking sector

Abstract

This study examines the influence of corporate governance mechanisms on earnings management in Ghana’s banking sector, using discretionary loan loss provisions (LLPs) as a proxy. It aims to evaluate how board structure, audit committee characteristics, and gender diversity affect earnings management practices. A panel research design was employed, covering 182 bank-year observations from 19 universal banks between 2014 and 2023. Data were sourced from audited financial statements and analysed using panel regression techniques in STATA. The results show a complex relationship between governance and earnings management. While board size, board independence, and audit committee features did not have a statistically significant impact on LLPs, surprisingly, board non-independence was found to have a significant negative correlation with earnings management, contrary to traditional agency theory expectations. Additionally, gender diversity was positively and significantly associated with conservative provisioning. Among the control variables, larger banks had higher LLPs, whereas Return on Assets and capital adequacy were linked to lower LLPS. The study indicates that good governance extends beyond mere structural compliance. It recommends that regulators, particularly the Bank of Ghana, improve governance quality by implementing targeted training, stricter enforcement, and performance-based oversight to reduce managerial risk discretion.