DOES EARNINGS MANAGEMENT AFFECT THE VALUE-RELEVANCE OF EARNINGS PER SHARE OF CORPORATE FINANCIAL REPORTS?
Authors:
Alematu Agbo (Ph.d), Paul Aondona Angahar (Ph.d), John Ayoor Ivungu & Eric Terfa Anongo
Abstract:
This paper investigates the effect of earnings management on earnings per share of listed Nigerian manufacturing companies’ reports. A ten year period (2005-2014) and 50 companies were used. Ordinary Least Squares (OLS), Ex-Post Facto descriptive design and regression analysis were adopted in the study. Discretionary accruals serve as the explanatory variable for the study and a proxy for earnings management while the dependent variable is earnings per share (EPS). Leverage (LEV) and size of the firm (SIZE) served as control variables. The study’s findings show a negative but insignificant correlation between EPS and earnings management of the financial reports of listed Nigerian companies for the study period (2005 to 2014). This implies that the increase in earnings management activities by managers leads to a decrease in the value relevance of earnings per share in the financial reports of Nigerian companies and vice versa. Arising from the findings, the study recommends that, earnings management should be minimized, as it tends to mask the reported earnings of companies. Regulatory bodies in the country should, therefore, enact policies that will curtail managers’ opportunistic behaviours.