Firm Attributes and Earnings Management among Listed Consumable Goods Companies in Nigeria

Abstract

The perpetration of earnings management in the preparation and presentation of financial statements poses a huge risk to stakeholders and indeed the sustainability of businesses in recent times. A major instrument being employed is traceable to firm attributes of the company. Firm attributes contribute greatly in influencing the likelihood and nature of earnings management problems within a firm. Therefore, this study investigated specific firm attributes and their impact on earnings management in Nigerian listed consumer goods businesses. The study focused on analyzing the effects of debt, firm size, profitability, and liquidity on earnings management among thirteen listed consumer goods companies. Thirteen (13) companies were selected using purposive sampling technique from study’s population of 21 firms over a ten-year period from 2013 to 2022. The data for the analysis was gathered from the audited annual reports of the chosen companies, and the methodology involved panel data estimation, correlation analysis, and descriptive statistics. According to the findings, profitability demonstrated a substantial negative impact on Earnings Management (t-val. = -2.210, p <0.05), implying that profitable companies engage in lower rates of earnings manipulation. Furthermore, the control variable of audit firm size (t-val. = -2.763, p <0.05) exhibited a significant negative effect on Earnings Management, while firm size (t-val. = -2.509, p <0.05) also showed a negative and significant influence on Earnings Management. This suggests that larger companies report reduced earnings manipulation, indicating a lower incidence of earnings manipulation in companies audited by the Big 4 auditing firms (audit firm size).Based on the study's findings, it can be concluded that firm characteristics such as profitability, size, and audit firm size significantly impact Earnings Management. It is recommended that managers and shareholders of consumer products firms in order to prevent idleness and liquidation should improve the efficacy and efficiency of their liquidity and profitability in order to improve or strengthen the financial performance of their organizations.