Determinants of Earnings Management in Firms Listed at the Nigerian Stock Exchange

Abstract

This study aims to investigate the determinants of earnings management in Nigerian Listed firms. Eighty-eight (88) non-financial firms listed on the Nigerian Exchange Group were randomly selected and the annual reports of these firms for a period of 13 years were studied (2007-2019). Data on the dependent variable (earnings management) and independent variables (tax aggressiveness, directors' shareholding, share price, the likelihood of IFRS adoptions, and the likelihood of political connections in non-financial firms) were derived from the annual reports of these firms and the online search machine of Cash Craft Investment Management. Two regression models were specified and panel regression was the method of data analysis. The outcome of the analysis revealed that significant relationships exist between discretionary accrual management and each of the following: tax aggressiveness, share price, the likelihood of adopting IFRS, the likelihood of political connections in non-financial firms, and a non-significant relationship exists between discretionary accrual earnings management and directors’ shareholding. Also, non-significant relationships exist between real activity earnings management and each of the following: tax aggressiveness, share price, and the likelihood of adopting IFRS; while significant relationships exist between real activity earnings management and each of the following: directors’ shareholding, and the likelihood of political connections in non-financial firms. The similarity in directions of relationships between tax aggressiveness and earnings management in both models in this study is an indication that management of firms may be interested in swapping one technique of earnings management for the other to obscure tax aggressiveness. Therefore, this study calls for further empirical research into an investigation as to whether tax aggressiveness can influence managers’ decision to swap real activity earnings management for discretionary accrual management.

Key Words: Earnings Manipulations, Political Connections, Tax Aggressiveness, Market value of firms, Adoption of IFRS.