How board structure affects accrual and real earnings management in Ethiopia

Abstract This study investigates the effect of board structure on accrual and real earnings management in Ethiopia. Before the enactment of Proclamation No. 1248/2021 and the subsequent official market launch in 2025, Ethiopia’s capital market operated under limited regulatory oversight. During this period, internal governance mechanisms played a significant role in constraining managerial behavior. Given this context, the study draws on agency and resource dependence theories to conceptualize board structure into five dimensions of board independence, size, CEO duality, financial expertise, and meeting frequency. We analyze panel data of 68 manufacturing companies over the period 2014–2023. Earnings management is measured using a Modified Jones Model and the Roychowdhury real activity manipulation model. For the data analysis, we employ fixed and random effects regression models as baseline estimators. To ensure the robustness of the results, we further implement a two-step Generalized Method of Moments (GMM). The results show that board independence, size, and financial expertise reduce earnings manipulation, while CEO duality increases it. This study makes a meaningful contribution by examining the multidimensional effect of board structure on both accrual and real earnings management. Furthermore, the findings offer policy implications for emerging economies, highlighting the need to strengthen board independence and financial expertise, as well as to separate the roles of CEO and board chair to enhance financial reporting quality.