Management Entrenchment, Firm Characteristics and Earnings Management Of Conglomerate Companies In Nigeria

Abstract

Sometimes the rivalry between shareholders and management is an indication of the level of entrenchment within the corporate environment. Managers are believed to routinely manipulate earnings in order to mislead shareholders about their company's actual economic outlook or performance. As a result, the study investigated the impact of managerial entrenchment, firm characteristics and earnings management of conglomerate companies in Nigeria. Employing the ex-post facto research design, the data was gathered from secondary source of the 6 listed conglomerate companies for the 11-year period running (2008-2018). The study used discretionary accruals a proxy for earnings management and to calculate discretionary accruals, the study used modified Jones model. The result showed that management entrenchment and firm characteristics have Impact on multinational firms ' earnings management in Nigeria. Specifically, from the conglomerate’s entrenchment proxies, CEO’s tenure has a positive and significant impact on earnings management (coff. =1.062821, p-value =0.0367) and management entrenchment as measured by CEO’s shareholding has a negative and insignificant effect on earnings management (coff. =-6252391, p-value = 0.4090) while firm size, profitability and leverage indicated a significant and positive impact on earnings management (coff, = 0.124587, p-value = 0.0000; coff. = 0.006647, p-value = 0.0431 and coff. = 0.032065, p-value = 0.0000). The study therefore recommended among others that management should reduce the debt in their capital structure in order to improve their companies’ value and their capital structure should be majorly financed by equity rather than debt and reduce CEOs tenure to minimise earnings management practices.

Investigating the Impact of Managerial Entrenchment on Corporate Financial Structure: Evidence from Nigeria

“…Managerial entrenchment and capital structure are essential areas in finance literature that has continued to command attention in recent years. Managerial entrenchment is the extent to which managers, who have been entrusted with the affairs of a firm, take advantage of their positions and the perceived weakness in the governance structure of the firm to pursue self-maximizing interests at the expense of shareholders (Danso & Adomako, 2014;Fabrizio, Juan, & Jordi, 2017;Fagbemi et al, 2020;Tolulope et al, 2018). On the other hand, capital structure is the blend of debt and equity to finance the assets of a business.…”

“…According to Fabrizio et al (2017) and Fagbemi et al (2020), CEOs can start to gain power and come to be more entrenched from their third year in office. Moreover, the sample period was partly influenced by the Nigerian economy's performance as the largest economy in Africa after the GDP was rebased from about US$270 billion to US$510 billion in 2013.…”

“…Moreover, judging by the low level of improvement of the legal system and the corporate governance structure, we believe that an executive with more than five years in the CEO position can be regarded as entrenched to influence decisions. The variable selection and definitions follow the existing studies by Berger et al (1997), Fabrizio et al (2017 and Fagbemi et al (2020). Table 1 presents the description of variables and the expected sign of their coefficients.…”

“…In recent times, the significance of financial decisions that ensure a firm's optimal performance has been a subject of serious concern for the stakeholders. A firm's shareholders desire to hire managers that will pursue minimal rent extraction and act in their best interest to guarantee wealth maximization (Fagbemi, Osemene, & Agbaje, 2020;Mule & Mukras, 2015). However, agency problems persist, especially in developing countries such as Nigeria.…”

Pengaruh Karakteristik Perusahaan, Kinerja Perusahaan, Dan Management Entrenchment Terhadap Manajemen Laba

“…Dengan manipulasi tersebut, manajer dapat mempertahankan posisinya dan juga mendapatkan imbalan seperti komisi jika perusahaan mengalami peningkatan laba. Perlakuan yang menyalahgunakan kekuasaan dari manajer ini sering kali disebut sebagai management entrenchment (Fagbemi, Osemene, & Agbaje, 2020). Entrenchment dari seorang manajer memberikannya hak untuk merancang, menjalankan dan mengejar hasil yang dapat menguntungkan perusahaan (Fagbemi et al, 2020).…”