Effect of Board Diversities on Earnings Quality of Non-Financial Firms in Nigeria
Abstract
This study examines the effects of board diversity on earnings quality in non-financial firms listed on the Nigeria Exchange Group. The primary objective is to assess how board tenure, ownership concentration, and foreign board membership diversity influence the accuracy and reliability of earnings reports, which are crucial for stakeholder confidence and market efficiency. Using a quantitative research design, the study employs panel regression analysis on secondary data from 33 firms over a 10-year period (2015-2024). The analysis reveals significant relationships between board tenure, ownership concentration, foreign board membership diversity, and earnings quality. Findings indicate that longer board tenure and higher ownership concentration are positively associated with earnings management, suggesting that entrenched boards and concentrated ownership may reduce oversight and increase the likelihood of earnings manipulation. In contrast, foreign board membership diversity is also linked to higher earnings management, which may be due to the challenges foreign directors face in understanding local governance practices. Statistical tests show strong significance, with p-values of 0.006, 0.003, and 0.001 for board tenure, ownership concentration, and foreign board membership diversity, respectively. The R squared value of 0.462 suggests that these variables explain a moderate proportion of earnings management variability. The study recommends that Nigerian firms enhance board independence and diversity, including more independent and foreign directors, to improve oversight and mitigate earnings manipulation. Additionally, firms should consider governance structures that limit the power of dominant shareholders to improve financial transparency. Finally, increasing foreign directors’ engagement and understanding of local market dynamics can optimize their contribution to governance and earnings quality. These strategies are crucial for improving corporate governance practices and ensuring more reliable financial reporting in Nigeria's non financial sector