Pre- and Post-Covid Analysis of Earnings Management and Financial Distress Among Nairobi Securities Exchange-Listed Firms

Abstract

Earnings management and financial distress are two important aspects of financial management in corporations that have attracted significant attention in academic research and practical applications. The main objective of this study is to comprehensively evaluate the impact of financial distress on earnings management practices in companies listed on the National Stock Exchange (NSE), both before and after the COVID-19 pandemic. Using multiple linear regression analysis, the research aims to investigate the causal relationship between earnings management and financial distress. By analyzing data from 37 publicly listed companies before and after COVID-19, the study aims to understand how financial distress affects earnings management, while considering control variables such as firm size, Gross Domestic Product (GDP), and inflation rates. The findings from the analysis before COVID-19 show a significant and positive correlation between financial strain and earnings management in companies. In contrast, the analysis during the post-COVID era indicates that the correlation between financial distress and earnings management is not statistically significant. However, the research findings highlight the significant role of firm size, which has a negative influence on earnings management. Specifically, smaller companies are more likely to engage in earnings management activities during the post-COVID period compared to larger corporations, as revealed by the results of this meticulous study.

An Examination into the Linkage Between Production Theory and Capital Structure of a Firm

“…Financial distress alludes to the condition of an organization's budgetary condition, which is portrayed by its continuous decay (Kamau & Murori, 2024). Financial distress refers to a company's deteriorating financial condition.…”