Asian Journal of Economics, Business and Accounting

Aims: To ascertain the effect of firm size on the relationship of interlocking directorship on discretionary earnings quality of quoted companies in the non-financial sector of Nigeria.

Study Design:  This study uses quantitative design.

Place and Duration of Study: The study focuses on Nigeria stock Exchange for a period of 15 years from 2002 to 2016.

Methodology: This study has used purposive sampling method; Panel data of 105 companies were extracted from a total population of 130 non-financial companies. Regression and correlation analysis was done including trend analysis.

Results: The beta coefficients of the resulting model, that is, the betas for the variables interlocking directorship and firm size were both statistically significant with p-values = 0.002 and 0.001, respectively which are less than 0.05. Similarly, the coefficient for the combined variables (interlocking directorship and firm size) was also statistically significantly with a p-value of 0.004 which is lower than 0.05. This implies that the null hypothesis β₁=0 is rejected and the alternative hypothesis β₁≠0 is taken to hold indicating that the model Y=0.425 (Interlocking directorship) + 0.064 (firm size – 0.028 (interlocking directorship and firm size) + e, is significantly fit. The               model DisEQ = α + β (Interlocking directorship x firm size) holds as suggested by the above           result.

Conclusion: This suggests that there is a significant negative linear relationship between the interlocking director and company’s discretionary earnings quality. Therefore, companies with interlocking directors on the board are prone to good discretionary earnings quality. Thus a company with a higher number of interlocking directors reduces discretionary earnings practices.