Determinants of earnings management: The study of Nigerian nonfinancial companies

Abstract

The extant literature links manageress incentives to earnings management. It has globally accounted for the collapse of some well-known, established firms, since it depicts a low financial reporting quality. This study employed data from the 77 nonfinancial firms listed on the Nigerian Stock Exchange for the period 2013-2019 in order to examine the determinants of earnings management. The result showed strong evidence of an incentive to manage earnings. Profitability (Return on Assets - ROA) and the size of a firm have a strong positive impact on earnings management, while the non-debt tax shield and operating cash flows have a strong negative influence on earnings management. The study suggests that external stakeholders should observe a firm's factors influencing its assets, non-debt tax shield and operating cash flows (such as accelerating/delaying cash receipts/payment through the use of credit sales and granting discounts), these being the crucial factors influencing earnings management even when the firm is increasing in size. Management should minimally use the above-mentioned factors of a firm as an earnings management instrument

Does Corporate Governance Constrain Earnings Management in an Unstable Economic and Political Environment?

“…A strong positive association was also identified between financial performance, as measured by ROA, and earnings management practices. This finding supports various previous findings (Abu-Jebbeh & Al-Thuneibat, 2017;Emudainohwo, 2021) stating that profitability is closely related to earnings management, but this contradicts previous research that found a negative association between profitability and earnings management (Anjum, Saif, Malik, & Hassan, 2012;Cudia & Dela Cruz, 2018). The finding therefore suggests that management may use DA to control earnings volatility and show consistent profits by reporting a high (or low) profit downward (or upward) (Beaver, 2002).…”

“…The finding therefore suggests that management may use DA to control earnings volatility and show consistent profits by reporting a high (or low) profit downward (or upward) (Beaver, 2002). Managers tend to manipulate high profits downward to avoid paying high taxes, minimize government scrutiny and to reflect the huge total capital employed in the business (Emudainohwo, 2021).…”

Pengaruh Kinerja Keuangan, Tax Avoidance, dan Kualitas Audit terhadap Manajemen Laba pada Perusahaan Manufaktur di Bursa Efek Indonesia

“…Manajer adalah yang memiliki paling banyak informasi tentang situasi ekonomi perusahaan. Hal tersebut menimbulkan kesenjangan asimetri informasi antara manajer dengan pemangku kepetingan (Emudainohwo, 2021). Pengungkapan sinyal berupa informasi berkualitas tinggi dapat meningkatkan kredibilitas perusahaan karena dengan demikian manajemen memiliki pandangan yang terencana dan kepercayaan diri akan masa depan perusahaannya (Scott, 2015).…”

“…Hasil menunjukkan bahwa manajemen dapat melakukan manajemen laba melalui downward laba tinggi ataupun upward laba rendah (Citra et al, 2021). Emudainohwo (2021) mengungkapkan alasannya mungkin untuk mencerminkan modal besar yang digunakan dalam bisnis, menghindari membayar pajak yang besar, dan menghindari pengawasan pemerintah.…”

Discretionary capitalization of development expenditures

“…The decision to (non)capitalize affects the amount of profit or loss for the period and, consequently, the various indicators based on which the company's performance (see Janeš, 2014, for more detail) is assessed. Managerial judgment does not necessarily lead to managerial opportunism, but different solutions in accounting standards allows managers to choose a more favourable alternative for each situation that arises, thus acting opportunistically (Emudainohwo, 2021).…”