Audit committee effectiveness, audit quality and earnings management: evidence from Ghana

Abstract

The paper investigates the effect of Audit Committee Effectiveness (ACE) on Earnings Management (EM) and consequently examines whether audit quality (Big4) can moderate the link between ACE and EM in Ghana. First, the study uses panel data from 25 non-financial firms in Ghana, and employs the fixed-effect (FE) and Two-stage Least-squares (2SLS) regression methods. Second, the evidence shows that ACE (AC independence, AC size and AC meetings) constrain EM with the effect being stronger for AC independence. Thus, firms with ACE tend to report lower earnings management. Third, further analysis reveals that the combined effects of Big4 and ACE (AC independence and AC meetings) on EM are stronger than ACE alone. This suggests that audit quality negatively moderates the link between ACE and EM. Finally, leverage, profit, cash flow and firm size affect EM.