REAL ACTIVITIES EARNINGS MANAGEMENT AND THE FINANCIAL PERFORMANCE OF QUOTED MANUFACTURING COMPANIES IN NIGERIA

Abstract

This research paper investigated the relationship between real activities based earnings management and the financial performance of manufacturing companies in Nigeria. The sample consisted of thirty four (34) manufacturing companies listed on the Nigeria Exchange (NGX). Period covered spanned from 2005 to 2019. Data was collected from the annual reports of sample companies and the Nigeria Exchange (NGX) data portal. Ordinary least square (OLS) and Philip-Peron (PP) unit root diagnostic methods were implemented for data analysis. Findings of the research revealed that From the data analyses, real activities based earnings management (REMG) had a positive and non-significant relationship with net profit margin (NPMG) and earnings per share (EPSH). Thus, REMG leads to improvement in NPMG and EPSH. However, the effect of REMG on financial performance is not sufficient to support the use of these earnings management methods. It was thus recommended among others things that: manufacturing companies in Nigeria should as much as possible discourage the use of real activities based earnings management practice as its benefits to the organization tends to be short term and may end up compounding financial difficulties in the future. Finally, it is recommended that manufacturing companies in Nigeria should adopt real activities based earnings management practices only when it is absolutely necessary for the survival and success of the organization. Thus, earnings management should be employed only as a last resort to avoid looming financial difficulties that may otherwise threaten the continued existence of the company.