Assessing Earnings Management of Listed Companies in the Nigerian Stock Exchange

The issues relating to earnings management and its resultant effects have been overly studied in accounting literature. However, the recurrent financial crisis that hit several large corporations around the world in the past two decades has further increased the research interest into the role of earning management on business collapses. This study built on the methodology of Jailong & Liu (2017) and Veganzones & Severin (2016). The study proxied earnings management by its four identified incentives – executive compensation, debt covenant, income smoothing and tax planning. The study adopted the ex-post facto research design. Secondary data were utilized as sourced from the sample size of one hundred and twenty-four (124) companies listed on the Nigerian Stock Exchange between years 2012 to 2016. Methodologically, the study employed two (2) multiple regression models. The panel regression model captures the four identified earnings management incentives. The second model incorporates industry type as possible moderator variable. The analyses involve the application of descriptive statistics, correlation matrix, panel data regression (model one) and hierarchical moderated regression (for model two). The result shows that, among the four independent variables, only tax planning does not have significant effect on bankruptcy risk. The study recommends, among others, that companies should consolidate and strengthen their top compensation structures with appropriate incentive plans that guarantees sustained financial performance, while management should ensure proper balancing of debt and equity to ensure a trade-off between risk and return to the shareholders.