Abstract

The purpose of this study was to examine the relationship between aspects of corporate governance and profit management in companies admitted to London Stock Exchange during 2010-2015. Using elimination sampling method and applying the sample selection conditions, 40 companies were selected as the sample. The test results of mean-difference test showed that 1) companies with sufficient corporate governance (either strong or weak corporate governance) have fewer accruals at the same levels of corporate governance, 2) firms with sufficient corporate governance, with the same level of corporate governance ability, have fewer accruals, ad 3) firms with poor corporate governance do not necessarily have more discretionary accruals compared to firms with strong corporate governance. In general, the results show that the sufficiency of corporate governance has a significant relationship with corporate governance ability compared to earnings management. Therefore, the results suggested that the adequacy of corporate governance is one of the determinant factors affecting profit management.