Appraisal of the Impact of Earnings Management on Financial Performance of Consumer Goods Firms in Nigeria
Journal of Finance and Accounting
Volume 8, Issue 1, January 2020, Pages: 34-47
Received: Jan. 7, 2020; Accepted: Jan. 18, 2020; Published: Feb. 14, 2020
Views 79      Downloads 87
Ubesie Madubuko Cyril, Department of Accountancy, Faculty of Management Sciences, Enugu State University of Science and Technology, Enugu, Nigeria
Nwankwo Bobby Godwin Ogbogu, Department of Accountancy, Faculty of Management Sciences, Enugu State University of Science and Technology, Enugu, Nigeria
Nwankwo Peter Emeka, Department of Accountancy, Faculty of Management Sciences, Enugu State University of Science and Technology, Enugu, Nigeria
Article Tools
Follow on us
There are two different tools of earnings management; real activities and accruals. Prior research shows that the discussion on earnings management was primarily focused on accrual manipulation strategies while recently many articles have focused on real activity manipulation as a proxy for earnings management. In accrual manipulation, managers introduce their judgment and subjectivity by accounting choices in the financial reports, and hence it could distort a company’s underlying operating performance. The main objective of this study was to determine the impact of Earnings Management on financial performance of consumer goods firms in Nigeria. The study adopted the ex-post facto research design and used simple regression analysis for analysing the pooled secondary data obtained from three selected consumer goods firms in Nigeria. The dependent variable in this study is financial performance proxy by Total Assets, Equity and Total liability of the firms while Earnings Management is the independent variable (proxy by Net profit or Profit for the Year). The findings show that Earnings Management does not have significant impact on financial performance of consumer goods firms in Nigeria. The study recommended that there should be conscious effort by management of consumer goods firms to improve the earnings management situation in order to impact on financial performance of the sector; Management of consumer goods firms should emphasize the equity of firms as a means of widening ownership fund position and internal source of capital; There must be re-assessment of the liabilities of such firms for proper positioning of financial performance of consumer goods firms in Nigeria.
Earnings Management, Financial Performance, Consumer Goods Firms
To cite this article
Ubesie Madubuko Cyril, Nwankwo Bobby Godwin Ogbogu, Nwankwo Peter Emeka, Appraisal of the Impact of Earnings Management on Financial Performance of Consumer Goods Firms in Nigeria, Journal of Finance and Accounting. Vol. 8, No. 1, 2020, pp. 34-47. doi: 10.11648/j.jfa.20200801.15
Copyright © 2020 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License ( which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Ruiz, C. V. (2016). Literature review of earnings management: Who, why, when, how and what for? Finnish Business Review, online at, on July 22, 2018.
Mulford C. W. & Comiskey E. E. (2012). The financial numbers game, detecting creative accounting practices. New York: John Wiley and Sons Inc.
Marai, A. & Pavlovi, V. (2013). Earnings management vs financial reporting fraud – Key features for distinguishing, Economics and Organization, 10 (1), 39-47.
Lev, B. (1989). On the usefulness of earnings and earnings research: Lessons and directions from two decades of empirical research, Journal of Accounting Research, 153-201.
Goncharov, I. (2005). Earnings management and its determinants: closing gaps in empirical accounting research, Europeans University Studies, Alemanha.
Kothari S. P. (2001). Capital markets research in accounting. Sloan School of Management, Massachusetts Institute of Technology, Cambridge.
Warglien, M. & Saccon, C. (2010). Earnings Management, Human Rationality, and Relative, Deprivation -- Some Critical Assessments, Dottorato di ricerca in Economia Aziendale Scuola di dottorato in Scuola Superiore in Economia, (A. A 2007/08 – 2010/11), Universita Ca’Foscari, Venezia, retrieved on July 27, 2017.
Scott W. (2003). Financial Accounting Theory. Pearson Education. Toronto. Ontaro.
Abbadi, S. S., Hijazi, Q. F. & Al-Rahahleh, A. S. (2016). Corporate governance quality and earnings management: Evidence from Jordan, Australasian Accounting, Business and Finance Journal, 10 (2), 54-75. doi: 10.14453/aabfj.v10i2.4.
Rosenzweig K., & Fischer M. (1995). Is managing earnings ethically acceptable? Management Accounting, 75; 9, pp 31-34.
Leuz, C., Nandab, D. & Wysocki, P. D. (2003). Earnings Management and Investor Protection: An International Comparison, Journal of Financial Economics, 69, 505-527., retrieved on July 29, 2018.
Hijazi, Q. (2015). Unpublished master thesis, University of Jordan, Amman, Jordan.
Hashim, A. H., Salleh, Z. & Ariff, A. M. (2013). The underlying motives for earnings management: Directors Perspective, International Journal of Trade, Economics and Finance, 4 (5), 296- 299.
Rahman, M., M., Moniruzzaman, M. & Sharif, M. J. (2013). Techniques, motives and controls of earnings management, International Journal of Information Technology and Business Management, 11 (1), 22-34.
Marcos dos Reis, E., Lamounier, W. M. & Bressan, V. G. F. (2015). Avoiding reporting losses: An empirical study of earnings management via operating decisions, 26 (69), 247-26, DOI: 10.1590/1808-057x201501070.
Kenton, W. (2019). What is financial performance? Available at, retrieved on September 10, 2019.
Barney, J. B. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17, 99–120.
Sandeep, G. (2016). The earnings management motivation: Accrual accounting vs. cash accounting, Australasian Accounting, Business and Finance Journal, 10 (3), 48-66, doi: 10.14453/aabfj.v10i3.4.
Zhu, X. & Lu, S. (n.d.). Earnings management through real activities manipulation before mergers and acquisitions, Journal of Finance and Accountancy, 1-6, retrieved on July 27, 2018.
Dani, A. C., Magro, C. B. D. & Klann, R. C. (2017). Earnings management through real activities: review of the existing literature and suggestions for future investigations, DOI: rgfc.v7n2p, 102-120.
Roychowdhury, S. (2006). Earnings management through real activities manipulation, Journal of Accounting and Economics, 42, 335–370.
Kothari, S. P., Mizik, N. & Roychowdhury, S. (2012). Managing for the Moment: The Role of Real Activity versus Accruals Earnings Management in SEO Valuation, seminar held at Boston College, USA.
Jordan, C. E & Clark, S. J. (2015). Do new CEOs practice big bath earnings management via goodwill impairments? Journal of Accounting and Finance, 15 (7), 11-21.
Cuzdriorean, D. D. (2013). Most recent findings in earnings management area: Interesting insights from traditionally top 5 leading accounting journals, Annales Universitatis Apulensis Series Oeconomica, 15 (2), 402-416.
Dela, C. & Aeson, L. C. (2015). Earnings Management Choice: An Empirical Study on the Impact of Earnings Management on Stock Returns, Presented at the DLSU Research Congress vol. 3, held at De La Salle University, Manila, Philippines March 2-4, 2015.
Florio, C. & Leoni, G. (n.d.). Earnings management research: Italian convergence towards US, 1-36.
Cardoso, F. T., Martinez, A. L. & Teixeir, A. J. C. (2014). Free Cash Flow and Earnings Management in Brazil: The Negative Side of Financial Slack, Global Journal of Management and Business Research: D Accounting and Auditing, 14 (1), 84-96.
Jensen M. (1986). The agency costs of free cash flows, corporate finance and takeovers. American Economic Review 76, 323-329.
Ghozali, I., Harto, P. & Yuyetta, E. N. A. (2018). Free cash flow, investment inefficiency, and earnings management: Evidence from manufacturing firms listed on the Indonesia Stock Exchange, Investment Management and Financial Innovations, 15 (11), 299-310.
Osma, B. G., Grande-Herrera, C. & Vázquez, A. B. (2017). The role of independent directors on earnings management: Evidence from individual incentives, 1-55.
Huang, S., Roychowdhury, S. & Sletten, E. (2017). Does Litigation Encourage or Deter Real Earnings Management? 1-42.
Badertscher, B., Phillips, J., Pincus, M., & Rego, S. O. (2009). Evidence on Motivations for downward Earnings Management, retrieved on July 27, 2018.
Wang, S. & D’Souza, J. (2006). Earnings management: the effect of accounting flexibility on R&D investment choices, Cornell University, Johnson School Research Paper Series #33-06.
Barton J & Simko P (2002). The balance sheet as an earnings management constraint. The Accounting Review. 77. 10.2139/ssrn.320641.
Qiang, X. (2013). Earnings management in small profit firms during financial crisis of 2008- 2009, Master’s Thesis Accounting, Oulu Business School, University of Oulu, retrieved on July 27, 2018.
Joosten, C. (2012). Real earnings management and accrual-based earnings management as substitutes, Master thesis Department Accountancy Faculty of Economics and Business Studies Tilburg University.
Zang, A. Y. (2012). Evidence on the trade-off between real activities manipulation and accrual- based earnings management, The Accounting Review, 87 (2), 675-703.
Roman, L. W. (2009). Quality of Earnings and Earnings Management, Journal of AICPA, available at, retrieved on July 27, 2019.
Goel, S. (2016). The Earnings Management Motivation: Accrual Accounting vs. Cash Accounting, Australasian Accounting, Business and Finance Journal, 10 (3), 2016, 48- 66. doi: 10.14453/aabfj.v10i3.4.
Cheng, Q, Lee, J. & Shevlin, T. (2013). Internal governance and real earnings management, American Accounting Association Financial Accounting and Reporting Section Midyear Meeting 2013, January 11-13; University of Technology at Sydney Annual Accounting Conference 2013, February; American Accounting Association Annual Meeting 2013, August 3-7, 1-58. Research Collection School of Accountancy, available at:, retrieved on July 25, 2018.
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
Tel: (001)347-983-5186