Benchmark Beating and Earnings Manipulation in Nigerian Firms
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Date
2022
Journal Title
Journal ISSN
Volume Title
Publisher
Asian Economic and Financial Review
Abstract
Earnings management among firms remains a central focus for academics, auditors and
regulatory bodies. Benchmark-motivated earnings management occurs when managers
engage in opportunistic activities, including flexible use of accounting standards to
misrepresent the information in a firm’s financial reports. Academic research has focused
on how firms manage earnings to beat benchmarks, but the evidence regarding firms in
emerging African stock markets is scarce and none is available for Nigeria. We applied
both accruals quality and discretionary accruals models to detect whether firms that beat
earnings benchmarks report earnings differently from others. Using 161 firms listed on
the Nigerian Stock Exchange from 2002 to 2019, the study verifies how benchmark
beaters manage earnings under the framework of two earnings thresholds – earnings
(level) and positive earnings changes. Earnings persistence tests were carried out to
verify whether benchmark beaters are consistent manipulators relative to non-beaters.
The findings indicate that positive earnings benchmarks differ among the dichotomized
groups. The evidence is not sufficient to validate that the change in earnings benchmarks
motivates earnings discretions. However, the evidence may improve for larger samples.
The study offers insights for informed decisions on the expectation of investment returns
for investors, creditors, and other market partakers that require earnings information