Firms growth opportunities and accruals earnings management nexus: does corporate and national governance systems play a role?

This paper sheds light on the intermediation of corporate and national governance systems as surveillance mechanisms, similar to Foucault’s panopticon, to produce stakeholders’ interest alignment as well as beneficial outcomes of earnings management practices of firms which have significant growth opportunities. The research included 104 companies that are listed on the stock markets of nine sub-Saharan African countries. Data was gathered from annual reports spanning the years 2007–2019, resulting in a total of 1044 firm-year observations. Panel data models were employed for the analysis. The study finds that, in line with the political cost hypothesis, there is a negative association between a firm’s growth opportunities and its accrual earnings management practices which suggest that growth firms are more inclined to utilise income decreasing accruals to deflect political attention and costs. The interaction effects of corporate and national governance systems tend to be the balancing act which realigns management’s actions in line with expectations much like the panopticon’s watchtower in Foucault’s theory which has useful policy implications. The current study is unique in that, it expands our understanding of the role governance plays in the firm growth—earnings management nexus using a novel lens of the Foucauldian panopticon theory.