Does Enterprise Risk Management Quality Constrain Real Earnings Management Practices? Evidence from Sub-Saharan Africa

In the wake of curbing managerial opportunism and self-serving tendencies, this study investigates how enterprise risk management quality affects real earnings management practices in sub-Saharan African emerging markets. This study uses the least squares dummy variable estimator to analyze panel data from 186 non-financial firms across nine sub-Saharan African countries between 2014 and 2020. Additionally, two-stage least squares and a two-step generalized method of moments address potential endogeneity concerns. The analyses indicate that enterprise risk management quality restricts managerial real earnings management practices, particularly in Big4 audited, larger, more profitable and financially constrained firms. This result holds when considering alternative enterprise risk management quality and real earnings management measures, the disaggregated enterprise risk management quality, regional variations and endogeneity tests. Stakeholders, researchers and regulatory bodies should consider enterprise risk management quality crucial for assessing managerial opportunism via real earnings management practices, thereby mitigating information asymmetry risks. This study offers an emerging market perspective, demonstrating that sub-Saharan African firms with high-quality enterprise risk management can safeguard themselves against managerial opportunism.