Determinants of Earnings Management: Evidence from Nigerian Real Sector


Akhalumeh Paul , Izevbekhai Monday , Ohenhen, Monday ,

Download Full PDF Pages: 92-103 | Views: 1367 | Downloads: 377 | DOI: 10.5281/zenodo.3474584

Volume 7 - January 2018 (01)


This study examines the effective factors determining earnings management among Nigerian companies the variables considered include: financial performance, firm size, board characteristics (board size and independence) and audit committee independence; external auditor type was used as a control variable. The study employs the panel data multiple regression designs. Data were extracted from annual financial statements of the selected firms. A sample of 72 firms was used to provide data for a period of 10 years. The results of the analysis show that all the studied variables exerted a positive effect on earnings management, but only financial performance (proxied by EPS) and firm size (proxied by the log of total assets). Board size and independence and audit committee independence and external auditor type are not significant determinants of earnings management of earnings management. The study recommends that concerted   efforts must be made to prevent manipulative and misleading earnings management practices; Investors should never make profitability and size their major indicators for making investment decisions; they must always look beyond the numbers; regulators should set guidelines to moderate the accounting choices available to preparers of accounting reports so as to make such reports more reliable; accountants must balance their responsibilities to service the information needs of all stakeholders 


Discretionary accrual: Income smoothening, Performance, Board of directors 


        i.            Abdelghany, K.E. (2003). Measuring the quality of earnings. Managerial Auditing Journal, 20(9), 1001 – 1015.

      ii.            Aboody, D. & Lev, B. (1998). The value relevance of intangibles: The case of software capitalization. Journal of Accounting Financial Research, 36, 161 – 191.

    iii.            Al-Fayoumi, N., Abuzayed, B. & Alexander, A. (2010). Ownership structure and earnings management in emerging markets: The case of Jordan. International Journal of Finance and Economics, 38, 28 – 47.

     iv.            Amer, L.H & Abdelkarim, N. (2011). Corporate governance and earnings management: Empirical evidence from Palestinian listed companies. A Working Paper; Birzeit University, Palestine.

       v.            Bergstresser, D. & Philippon, T. (2006). CEO Incentives and earnings management. Journal of Financial Economics, 80(3), 511 – 529.

     vi.            Bernard, V. (1995). The Felthan-Olson framework: Implication for empiricists. Contemporary Accounting Research, 11, 733 – 747.

   vii.            Bushee, B. (1998). The influence of institutional investors in myopic R&D investment behaviour. The Accounting Review, 73(3), 305 – 333.

 viii.            Chan, K., Chan, L. Jegadeesh, N. & Lakonishok, J. (2001). Earnings quality and stock returns: The evidence from accruals. Working Paper, National University of Taiwan and University of Illinois.

     ix.            Cornett, M. M., Marcus, A. J. & Tehranian, H. (2008). Corporate governance and pay-for-performance: The impact of earnings management. Journal of Financial Economics. 87(2008), 357 – 373.

  1. DeAngelo, L. E. (1981).  Auditor size and quality.  Journal of Accounting and Economics, 3(3),       81-199.

     xi.            Dechow, P. & Dichev, I. (2002). The quality of accruals and earnings management: The role of accrual estimation errors. The Accounting Review, 77(Supplement), 35 – 59.

   xii.            Dechow, P. & Sloan, R. (1991). Executive incentive and the horizon problem. Journal of Accounting and Economics, 14(2), 51 – 89.

 xiii.            Dechow, P. (1994). Accounting earnings and cash flows as measures of firm’s performance: The role of accounting accruals. Journal of Accounting and Economics, 18(1), 3 – 42.

 xiv.            Dechow, P., Kothari, S. P. & Watts, R. (1998). The relation between earnings and cash flows. Journal of Accounting and Economics, 25(2), 133 – 186.

   xv.            DeFond, M. & Jiambavlo, J. (1994). Debt covenant and the manipulation of accruals. Journal of Accounting and Economics, 17(1), 145 – 176.

 xvi.            Fairfield, P., Whisenant, S. & Yohn, T.L. (2003). Accrued earnings and growth: Implications for future profitability and market mispricing. The Accounting Review, 78 (1), 353 – 371.  

xvii.            Fields, T., Lys, I. & Vincent, L. (2001). Empirical research on accounting choice. Journal of Accounting and Economics, 31(1), 255 – 307.

xviii.            Friedan, J. M. (1994). Accounting choices of issuers of initial public offerings. Contemporary Accounting Research, 11(1), 1 – 31.

 xix.            Hassan, S. U. & Ahmed, A. (2012a). Corporate governance, earnings management and financial performance: a case of Nigerian manufacturing firms. American International Journal of Contemporary Research, 2(7), 214 – 226. 

   xx.            Hassan, S. U. & Ahmed, A. (2012b). Ownership structure and opportunistic accounting: A case of listed food and beverage firms in Nigeria. International Journal of Physical and Social Sciences, 2(7), 180. 

 xxi.            Haung, D. T. & Liu, Z. C. (2011). The Relationship among governance and earnings management: An empirical study on non-profit hospitals in Taiwan. African Journal of Business Management, 5(14), 5468 – 5476.

xxii.            Healy, P. M. & Wahlen, J. M. (1999). A review of the earnings management literature and its implication for standard setting. Accounting Horizons, 13(4), 365 – 383.

xxiii.            Healy, P. M. (1985). The effect of bonus schemes on accounting decisions. Journal of Accounting and Economics, 7(1), 85 – 107.

xxiv.            Isenmila, P. A.& Elijah, A. (2012). Earnings management and ownership structure. International Journal of Business and Management Tomorrow, 2(8), 1 – 10.

xxv.            Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Working Paper No. 01-01, Harvard Business School.

xxvi.            Jones, J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193 – 228.

  1. Lys, T. & Watts, R. (1994).  Lawsuits against auditors.  Journal of Accounting Research,      32(1),   65-93.

xxviii.            Mande, V. & File, R. (2000). Income smoothing and discretionary R & D expenditure of Japanese firms. Contemporary Accounting Research, 17(2), 203 – 302.

xxix.            Neffati, A., Fred, I. B. & Schalek, C. (2011). Earnings management, risk and corporate governance in US companies. Corporate Ownership & Control, 8(2), 170 – 176.    

xxx.            Ohlson, J. (1995). Earnings, book value and dividends in equity valuation. Contemporary Accounting Research, 11(2), 661 – 687.

xxxi.            Osisioma, B. C. & Enahoro, J. A. (2006). Creative accounting and option of total quality accounting in Nigeria. Journal of Global Accounting; 2 (1); 5 – 15.

xxxii.            Rauf, F. H. A., Johari, N. Buniamin, S. & Rahman, N. R. A. (2011). The impact of company and board characteristics on earnings management: Evidence from Malaysia.

xxxiii.            Rezaei, F. & Roshani, M. (2012). Efficient or opportunistic earnings management with regards to the role of firm size and corporate governance practices. Interdisciplinary Journal of Contemporary Research in Business. 3(9), 1312 – 1322.

xxxiv.            Sanda, A., Mikailu, A. S. & Garba, T. (2005). Corporate governance mechanisms and firm financial performance in Nigeria. AERC Research Paper 149, African Economic Research Consortium, Nairobi (March).

xxxv.            Spohr, J. (2005). Essays on earnings management. Working paper, Nr. 153, Swedish School of Economics and Business Administration, Helsinki, Finland.

xxxvi.            Sun, L. & Rath, S. (2010). Earnings management research: A contemporary research method. Global Review of Accounting and Finance, 1(1), 121 = 135. 

xxxvii.            Teoh, S, H., Welch, I. & Wong, T. J. (1998). Earnings management and the long-run market performance of initial public offerings. Journal of Finance, 53(6), 1935 – 1975. 

xxxviii.            Usman, S. H. & Yero, J. I. (2012). Ownership concentration and earnings management of Nigerian listed conglomerates. American International Journal of Contemporary Research, 2(7), 157 – 171.

xxxix.            Watts, R. I. & Zimmerman, J. I. (1986). Positive Accounting Theory. Englewood Cliffs, N. J.: Practice-Hall. 

     xl.            Wectman, P. (2003). Financial Accounting: An Introduction, (3rd Ed.). Harlow: Pearson Education.

   xli.            Zhang, Y. & Uchida, K. (2012). Corporate governance, investor protection and earnings management: New International evidence. Kyushu University, Fukuoka, Japan.


 xlii.            Zhu, V. & Tian, G. G. (2009). CEO pay-performance and board independence: The impact of earnings management in China. A paper presented at the 4th International conference on Asia-Pacific financial markets, Seoul, South Korea

Cite this Article: