European Journal of Accounting, Auditing and Finance Research (EJAAFR)

EA Journals

Earnings Management

Effect of Managerial Ownership and Audit Committee Financial Expertise on Earnings Management of Listed Manufacturing Companies in Nigeria (Published)

Earnings management research has a long and rich history. However, the effect of managerial ownership and audit committee financial expertise on earnings management is rarely conducted in the developing countries like Nigeria. Therefore, this study examines how managerial ownership and audit committee financial expertise on earnings management of listed manufacturing companies in Nigeria. This study used the Roychowdhury approach to measure real earnings management. Thirty-four (34) manufacturing companies out of seventy-three (73) population that were listed on the Nigerian Exchange (NGX) from 2007 to 2021 was selected as sample size. Data was gleaned from the annual financial reports of the sampled companies for this study. Descriptive statistics, Pearson correlation, and quantile regression analysis are the econometric techniques used to test the analysed data and for hypothesis testing. Results from the study showed that managerial ownership significantly affects real-earnings management. When the effect was moderated by the financial expertise of the audit committee, the effect of ownership structure on real earnings management disappears. The result from the study show that managers of manufacturing firms in Nigeria should be encouraged to own more shares in the companies they manage in order to minimize real earnings management. The evidence can theoretically serve as a solid foundation for regulatory action, notably through improving the alignment of managers’ and shareholders’ interests. The results from this study have important implications for regulators, who will gain from understanding how managerial ownership affects real earnings management and improve the accuracy of financial reporting. The findings will also help policymakers and academics to understand how managerial ownership affects real earnings management in Nigeria.

Citation: Irom M.I., Okpanachi J., Ahmed N.M., and Agbi S.E. (2023)   Effect of Managerial Ownership and Audit Committee Financial Expertise on Earnings Management of Listed Manufacturing Companies in Nigeria, European Journal of Accounting, Auditing and Finance Research, Vol.11, No. 2, pp.15-35

Keywords: Earnings Management, Managerial Ownership, audit committee financial expertise, real earnings management

Effect of Corporate Governance on the Earnings Management of Listed Manufacturing Firms in Nigeria (Published)

The study examined the effect of corporate governance on the earnings management of listed manufacturing companies in Nigeria. The specific objectives of the study were to investigatethe effect of board size, board gender diversity, board independence, audit committee size, and ownership structure onEarnings Management of Listed Manufacturing Companies in Nigeria. Ex-post facto research design was adopted while panel data was collected a sample of 19 consumer goods companies listed on Nigerian Stock Exchange.The Generalised Least Square Regression Model aided by STATA 14.2 statistical package as used to estimate the effect of corporate governance on the earnings management of listed manufacturing companies in Nigeria.The study found that board size had negative and no significant effect on earnings managementof listed manufacturing companies in Nigeria;board gender diversity hadnegative and no significant effect on earnings management of listed manufacturing companies in Nigeria; board independence had positive and no significant effect on earnings managementof listed manufacturing companies in Nigeria, audit committee size had positive and no significant effect on earning managementof listed manufacturing companies in Nigeria and ownership structure hadnegative and significant effect on earnings managementof listed manufacturing companies in Nigeria.The implications of the findings are that, the size of the firm’s corporate board does not influence the volatility in discretionary accruals within the period studied and moreso, the presence of female board members does not determine the earnings manipulation in the firms significantly.The study concluded that increase in the number of independent directors reduces the occurrence of earnings manipulation and the number of directors that make up the audit committee does not affect earnings policy of manufacturing firms.This affirms that directors’ holding many shares can influence the occurrence of earnings manipulation. The study recommended that board composition should include a greater proportion of independent outside directors with corporate experience. Independent directors’ ratio to the total board size should be more to allow unbiased decisions on the financial statements.

Keywords: Accruals, Corporate Governance, Earnings Management, Firms, Manufacturing

Audit Quality and Earnings Manipulations in Nigeria: Beneish Model (Published)

The significance to prepare reliable information discloses the need to fall back on an external auditor and a quality auditing process that can caution against the management of earnings. In line with the business practice, auditing does not provide sufficient coverage for some earnings management (EM) activities that result in financial statement fraud. Over the years, capital markets around the globe have witnessed numerous corporate financial scandals largely because of financial and accounting figures’ manipulation. This has led to casting doubt on the quality of published financial reports and questioning the ability of the audit process. Against this background, this study examined the relationship between audit quality and real earnings management of listed manufacturing companies in Nigeria. Specifically, this study evaluated the effect of audit firm size, audit firm industry specialization, audit firm tenure, and audit firm independence on real earnings management. The study sampled 38 out of 55 listed manufacturing companies that cut-across different sectors from 2013 to 2020. From the multivariate analysis, the findings revealed a significant relationship between audit quality (audit firm size and audit firm independence) with a p-value of 0.014 and 0.003 respectively. It was concluded that firms audited by Big-4 firms with independence attract greater publicity and tighter scrutiny; hence, companies tend to desist from managing their earnings. The study, therefore, recommended that the management of manufacturing firms in Nigeria should persist in engaging experience audit firms with international affiliations, and they should work strictly with the CAMA, 2020 as amended by rotating audit firms after every three years as this will promote the reliability of financial statement prepared by management, and finally reduce manipulation of earnings.


Keywords: Audit Firms, Audit Quality, Earnings Management, firm independence, manipulations

Board Characteristics and Earnings Management: Empirical Analysis of UK Listed Companies (Published)

Present study investigates to find out the associations between characteristics of the boards and the level of earnings management. For the investigation, level of the earnings management has taken from UK listed companies during 2012 to 2016. Moreover, the abnormal accruals are considered as the proxy of the level of earnings management, and which show the level of earnings management for the companies. The study uses Modified-Jones model to measure the abnormal accruals, and uses Random effects model to find out whether the characteristics of the boards are related with the level of earnings management. By running the regression, it finds out that the CEO duality and board size are negatively related the level of earnings management at the significant level. However, the study fails to find out the board meetings, percentage of independent directors and the percentage of female directors in the board is significantly associated with the level of earnings management.

Keywords: Accruals, Corporate Governance, Earnings Management, dependent variables, independent variables

The Association between Audit Quality and Earnings Management by Listed Firms in Nigeria (Published)

This study examines the association between audit quality and earnings management by listed firms in Nigeria. The study measures audit quality by audit firm size and earnings management by the absolute abnormal discretionary accruals using the modified Jones model. The study was carried out in two parts, the first part is the comparative study using independent sample t-test and the Wilcoxon signed ranked test. The second part is the multivariate analysis where the association between audit quality and earnings management was examined. Based on our analysis, we found that auditor size has restrained earnings management but the decrease is not statistically significant. The implication of this finding is that users should not blindly assume that high audit quality proxy by the big 4 auditor is a symbol of earnings quality.

Keywords: Audit Quality, Earnings Management, Nigeria, auditor size

Effect of Corporate Governance and Ownership Structure on Earnings Management of Brewery Industry (Published)

The purpose of this paper is to investigate the effect of cooperate governance and ownership structure on earnings management of Brewery industries. 2004to 2013 was the period used for this study .Regression technique, was used to analyses the data, the result shows that CEO and Managerial ownership have positive significant effect on Earning management, the findings also reveal that price earnings ratio, Net assets per share of firm affect Earning Management.

Keywords: Earnings Management, Institutional Investors, Net asset per share, Price Earnings ratio and Brewery Industries


: The objective of this study is to investigate the effects of changes from Malaysia and Nigeria previous accounting standards to IFRSs-based standards on earnings management of Malaysia and Nigeria banks. Limited studies on the association between IFRS and earnings management in emerging economies and the continuous exclusion of financial institutions from samples of prior studies motivated this study to acquire the banking sector of two emerging countries – Malaysia and Nigeria in order to investigate whether changes in Malaysia and Nigeria accounting standards affects earnings management activities. Hence, this study used a sample of 23 banks representing 8 Malaysian banks and 15 Nigerian banks for a study period of 4 years (2009-2012). This study modified the Jones (1991) model to investigate earnings management in the banking sector. The modified Jones model is able to investigate earnings management in the banking sector. MFRSs and IFRSs impact more significantly and positively on the quality of accounting information of banks than the previous FRSs and SASs respectively for Malaysia and Nigeria. Specifically, the accrual and earnings quality of Nigerian banks has improved by approximately 41% and Malaysia banks 12.6% during the IFRSs/MFRSs adoption era. This study therefore recommends that globally, IFRSs should be adopted as the standard for the preparation and reporting of financial statements

Keywords: Accounting Standards, Discretionary Accruals, Earnings Management, Ifrss, Jones Model, Mfrss, Non-Discretionary Accruals, Total Accruals


This study follows prior studies on cash – based activities manipulations to investigate total levels of cash – based earnings management relative to the association between cash – based earnings management and audit firm size of companies in Nigeria. First, the study measures the normal level of real activities by focusing on three manipulation schemes namely, manipulation of sales, overproduction, and reduction in discretionary expenses. The normal levels of each type of real activities manipulation were measured as the residual from relevant estimation models. The abnormal CFO, abnormal production costs and abnormal discretionary expenses were computed as the difference between the actual values and the normal levels predicted from the respective models while the composite value of the three variables is the estimate for cash – based earnings management. Based on a sample of 342 companies – year observations from the NSE and applying audit firm size as a measure, comprehensive multivariate analyses were conducted on archival data covering 2006 – 2011. The result showed that audit firm size exerts significant negative relationship with cash – based earnings management of quoted companies in Nigeria. It is suggested that companies in Nigeria should improve their earnings quality only through sales growth and cost control strategies and present distinct reports on earnings quality; company auditors should issue Integrated Audit Quality Assurance Reports based on earnings quality assessments statutorily backed by earnings monitoring of companies in Nigeria; while regulatory agencies should issue authoritative codes of best practice in Nigeria

Keywords: Audit Firm Size, Audit Quality, Cash Flow from Operations., Earnings Management, Earnings Quality


Auditor Tenure defines the length of the auditor-client relationship while auditor independence (measured by the quantum of audit fees received) defines an auditor’s quality of being free from influence, persuasion or bias, and hence the unbiased mental attitude in making decisions throughout the audit and financial reporting process. The absence of independence may greatly impair the value of the audit service and the audit report. On the other hand, an excessively long association between the auditor and his client may constitute a threat to independence. This study examines the relationship and effects of auditor tenure and auditor independence on the earnings management (measured by the amount of discretionary accruals) of companies in Nigeria. The study relies on secondary data derived from various companies’ financial statements and the Nigerian Stock Exchange fact book to determine and measure the level of earnings manipulations in corporate financial statements, applying an all-inclusive multivariate analysis. The empirical analysis using a total of 342 company year observations, shows that Audit tenure and auditor independence exert significant effects and exhibit significant relationship with the amount of discretionary accruals of quoted companies in Nigeria. The descriptive statistics result reveals a minimal presence of discretionary accrual management by the companies in the sample and on the average; about 94% of the companies engage their audit firms for over three years, with a considerable experience of a substantial number of audit firms in this distribution

Keywords: Auditor Independence, Auditor Tenure, Auditors Reports, Discretionary Accrual, Earnings Management

Investigating the relation of independence of boards of directors with earning: evidence from listed firms in Tehran stock exchange (Review Completed - Accepted)

The purpose of this article is to investigate the relation of companies’ board of directors and its composition with annual earnings. The sample of this research is 61 of registered firms in Tehran Stock Exchange which have complete financial information and reports about the composition of their board of directors from 2008 to 2013. The results shows that board of directors with more independent managers have made much more earnings, therefore have direct influence on profit of firms. Thus, we can claim that board of directors is a vital factor for stock exchange firms for being profitable. The result in this research is in line with previews researches in this field. We conclude that firms with more independent managers on their board of directors are more profitable than those with less independent managers on their board of directors.

Keywords: Board Of Directors, Earnings Management, Tehran stock exchange

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