Accrual Earnings Management, Real Earnings Management and Firm’s Value of Quoted Manufacturing Companies in Nigeria

  • Clement Olatunji Olaoye Ekiti State University
  • Micah Juwon Akinleye Ekiti State University
Keywords: accrual-based earnings; real-based earnings; firm value; manufacturing companies; least square panel regression


This study investigated relationship between accrual-based earnings, real-based earning management and firm’s value of listed manufacturing companies in Nigeria. The secondary data used were collated from the annual reports of the selected listed manufacturing firms on the Nigeria stock exchange. The study adopted descriptive, panel least square regression technique such as pooled, fixed and random effect with various diagnostic evaluation techniques. The result revealed that accrual-based earnings management measured by abnormal discretionary accrual earnings (ADA) was positively related with the firm’s value captured by the return on equity (ROE) of the quoted manufacturing companies and increased it to the turn of 38.31 percent. On the other hand, the real-based earnings management measured by abnormal cash flow operation activities (ACF) was discovered to be negatively related with the firm value captured by return on equity and thus reduced it by 12.25 percent. The result of the individually selected quoted manufacturing companies showed that accrual-based earnings management captured by abnormal discretionary accrual earnings (ADA) and real-based earnings management proxied by abnormal cash flow of operation activities (ACF) influence the return on equity (ROE) a measured of firm value of the FLRM, GUIN, NASC, NIGB and PZCU by 1.29, 0.73, 0.14, 1.77 and 0.92 percent respectively. While, on the other hand, accrual-based earnings management captured by abnormal discretionary accrual earnings (ADA) and real-based earnings management proxied by abnormal cash flow of operation activities (ACF) reduced the return on equity (ROE) a measured of firm value of the DCEM, DFLR, DSUG, HWEL and UNIL by 2.58, 1.21, 4.09, 3.69 and 3.80 respectively in Nigeria. The probability of F-statistic value 0.000 < 0.05 revealed that panel regression model was statistically significance and thus valid, reliable and appropriate for assessing the relationship and the effect of earnings management and the firm value of the listed manufacturing companies in Nigeria. Hence, this study concluded that the practice of earnings management constructively benefits the manipulator of accounts. It can be emphasized that ease in detecting accrual earnings management can make investors to decide whether a company is worthy of their investment. Also, if there are difficulty in detecting earnings management from real activity, it would be impossible for the investors to invest or being involve in speculative investment in the company.

Author Biographies

Clement Olatunji Olaoye, Ekiti State University

Department of Accounting

Micah Juwon Akinleye, Ekiti State University

Department of Accounting


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