Abstract:
Drawing on the observation that corporate failures over the past two decades have
often been linked to ineffective internal controls and corporate governance, this study
addresses the critical issue of earnings management. Particularly, it examines how
corporate governance characteristics affect earnings management for listed non financial firms in Sri Lanka. This study employed agency theory to investigate the
impact of board independence, CEO duality, board meetings, board size, and board
members with financial expertise on these practices. Several studies have been
conducted to investigate the impact of corporate governance board characteristics on
earnings management; however, the results appear to be contradictory. The research
adopted a deductive research method and selected 140 listed non-financial firms from
2022 to 2024. The gathered data was then analysed using panel least squares
regression. The study found that real earnings were significantly negatively impacted
by board independence and the financial and accounting expertise of board members,
indicating that tighter oversight results in less earnings management. On the other
hand, real earnings were significantly positively impacted by board size, suggesting
that larger boards may be linked to higher levels of earnings management. In this
model, CEO duality and the frequency of board meetings were not found to be
significant on their own. These findings will help to highlight how crucial certain
corporate governance practices are for promoting high-quality financial reporting and
preventing earnings manipulation. The study suggests giving preference to board
members with strong financial expertise and maintaining a balanced board with a
larger percentage of independent directors, making effective board size management
a contribution to better financial reporting quality
