Board diversity and earnings management: Moderating role of financial constraints in Nigeria listed food and beverages companies

Abstract

This study examined the moderating role of financial constraints on the effect of board diversity on real earnings management among listed Food and Beverages Companies in Nigeria. Specifically, it aimed to ascertain the moderating effect of short-term liquidity constraints on the relationship between board independence, board size, and board gender diversity and real earnings management. The study adopted an ex-post facto research design, with a population of sixteen (16) listed Food and Beverages firms, from which twelve (12) were purposively selected. Secondary data were collected from the annual reports of the firms over a ten-year period that spanned 2015–2024. Data were collected from the annual reports and financial statements of the sampled firms and analyzed using the Fixed Effect Model (FEM) regression technique to test the formulated hypotheses at 5% significance level. The findings revealed that: short-term liquidity constraints positively moderate the effect of board independence on real earnings management (β = 8.20, p = 0.0001) at 5% significance level; short-term liquidity constraints negatively moderate the effect of board size on real earnings management (β = -0.29, p = 0.0006) at 5% significance level; short-term liquidity constraints negatively moderate the effect of board gender diversity on real earnings management (β = -9.89, p = 0.0000) at 5% significance level. The study concluded that financial constraints play a critical role in shaping how board characteristics influence earnings management practices, emphasizing the need for improved liquidity management and board composition to enhance financial transparency in Nigeria’s food and beverages sector. It was recommended that regulators and company shareholders should ensure that independent directors receive specialized training on financial distress indicators and ethical financial reporting. This will help them better recognize and resist pressures to engage in earnings manipulation during times of financial difficulty, thereby improving oversight effectiveness.

Keywords: Board Diversity, Earnings Management, Financial Constraints.