Academic Thesis

Purpose: This study explores the role of board effectiveness and audit quality in curbing earnings management in the banking sector of Bangladesh. Using discretionary loan loss provisions (DLLP) as a proxy for earnings management.

Design/Methodology: The study is based on a panel dataset comprising 180 bank-year observations from 30 commercial banks listed on the Dhaka Stock Exchange over the period 2014 to 2019. A fixed-effects regression model, supported by robustness checks using robust least squares, is employed to assess the relationship between governance characteristics.

Findings: The results reveal that board gender diversity is negatively and significantly associated with DLLP, indicating that greater female representation on boards contributes to stronger oversight and reduced earnings manipulation. Additionally, political connections, although positively related to DLLP, are not statistically significant, indicating a complex and context-dependent role in shaping managerial behavior. In contrast, board size, board independence, and audit quality do not show significant effects on DLLP.

Research Limitations: This study is limited by its dependence on secondary data, which may not fully reflect all qualitative aspects of board effectiveness. Furthermore, the findings specifically relate to the banking sector in Bangladesh and may not apply to other industries or regions.

Originality of the Research: This study contributes to the literature on corporate governance and earnings management in emerging markets by highlighting the nuanced effects of board composition and political affiliation in the context of Bangladesh. The findings underscore the need for policy measures that enhance board diversity and strengthen governance mechanisms to improve financial transparency in the banking sector.