Thematic Area, Accounting and Taxation Relationship between Audit Committee Independence and Earnings Quality of Non-Financial Firms Listed at the Nairobi Stock Exchange, Kenya

Abstract

Specifically, the study sought to determine the relationship between audit committee independence and the earnings quality of non-financial companies listed on the Nairobi Stock Exchange (NSE), as well as the effect of audit committee independence on earnings quality when ownership concentration is taken into consideration as a moderator of the relationship. The study followed a positivist research philosophy and employed a quantitative research design. The study's target population was the 39 non-financial companies listed on the NSE as of December 31, 2020. The study made extensive use of secondary data. For 13 years, information was gathered via a disclosure index (2008-2020). After running diagnostic and specification tests on the model under test, a panel regression model was used to analyze the data. The audit committee independence of non-financial enterprises listed on the NSE had a significant impact on the earnings quality of the companies in both the presence and absence of ownership concentration as a moderator, according to the findings. Additionally, the results revealed that the model that included a moderator outperformed the model that did not include a moderator (ownership concentration). The study comes to the conclusion that the independence of the audit committees of non-financial companies listed on the NSE has a significant impact on the quality of their earnings. Non-financial companies listed on the NSE, according to the findings, should evaluate the criteria used to determine the composition of their audit committees in order to ensure that they are more independent and diverse. This will eliminate earnings manipulations while also making directors more accountable to shareholders, thereby increasing investor confidence in the company.