Moderating Role of Audit Committee on Ownership Structure and Earnings Management: A Proposed Model

Abstract

This study presents the moderating role of the audit committee on the relationship between ownership structure and earnings management. The study was founded based on the mixed results observed in existing empirical studies on ownership structure and earnings management. The audit committee plays a significant role in monitoring the excesses of managers in perpetrating actions that are geared towards unsolicited personal gains and also reducing the quality of financial reporting. Thus, effective utilization and deployment of audit committees could bring about a shift in ownership structure and a boost to financial quality reporting. Therefore, on this note, the present study offers a theoretical explanation of how audit committees could moderate the relationship between ownership structure and earnings management. Signalling theory is employed as the underpinning theory to provide a theoretical background for the study.