Effect of Financing Decision On Earnings Management of Listed Consumer Goods Firms in Nigeria
Abstract
This study investigated the effect of financing decisions on earnings management of listed consumer goods firms in Nigeria between 2013 and 2023. The research examined how different financing decisions; debt financing and equity financing, influence the manipulation of financial statements for the purpose of income smoothing, tax avoidance, or meeting financial target. The study employed ex-post facto research design. Eleven (11) major consumer goods companies out of sixteen (16) sampled companies listed on the Nigerian Exchange Group (NGx) were used for the study. Descriptive statistics was used to summarize the basic characteristics of the results while the hypotheses were tested with Pearson correlation and simple regression analysis. The findings indicate that debt financing is significantly associated with higher levels of earnings management, as firms with higher debt ratios tend to engage more in income smoothing to meet the expectations of creditors and shareholders. On the other hand, equity financing shows a less pronounced effect on earnings management, with companies relying on equity financing exhibiting lower tendencies to manipulate their earnings. The study also finds that the agency theory, which suggests that conflicts of interest between managers and stakeholders may lead to earnings management, is a key factor in explaining the relationship between financing decisions and earnings management in these companies. The study concludes that understanding of how financing decisions impact corporate governance and financial reporting practices in the Nigerian context, provides valuable insights for investors, regulators, and policymakers, highlighting the need for effective monitoring and regulatory frameworks to reduce the potential for earnings manipulation in the consumer goods sector. Furthermore, the research recommended that since debt financing significantly reduces earnings management, Nigerian consumer goods companies should strengthen their debt governance mechanisms. Lenders should impose strict financial covenants and regular audits to ensure compliance and prevent financial misreporting.
Keywords
Financing Decisions, Earnings Management, Debt Financing, Equity Financing, Consumer Goods Companies, Nigeria.
Citations
IRE Journals:
Bainamai James Nomiri PhD, Ikilidih, Joy, Nkechi, PhD. "Effect of Financing Decision On Earnings Management of Listed Consumer Goods Firms in Nigeria" Iconic Research And Engineering Journals Volume 9 Issue 9 2026 Page 3106-3127 https://doi.org/10.64388/IREV9I9-1715796
IEEE:
Bainamai James Nomiri PhD, Ikilidih, Joy, Nkechi, PhD.
"Effect of Financing Decision On Earnings Management of Listed Consumer Goods Firms in Nigeria" Iconic Research And Engineering Journals, 9(9) https://doi.org/10.64388/IREV9I9-1715796
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