The Effects of Ownership Structure on Earnings Management in Public listed firms in Nigeria.

Abstract

The efficacy of corporate governance is enhanced when managers demonstrate a willingness to act in a manner that is contrary to the preferences of shareholders. An instance of management's potential disregard for shareholders' interests is the employment of accounting accruals as a means of manipulating earnings for management purposes. The primary objective of external financial reporting has been subject to scrutiny by various financial report users due to the impact of earnings management on the informational accuracy of these reports, thereby raising concerns about their credibility and reliability. This study aims to examine the influence of ownership structures on the implementation of earnings management. The ownership configuration of a company is commonly delineated by three discrete classifications: managerial ownership, institutional ownership, and block ownership, which is also denoted as "highest ownership." The evaluation of earnings management is carried out by means of the modified Jones model, which was introduced by Dechow, Sloan, and Sweeney in 1995. The research employed a dataset consisting of 1304 publicly listed firms in Nigeria, spanning the period from 2015 to 2022. The findings of the study show a positive association between highest holder and managerial ownership with earnings management which implies that both managerial and highest holder are connected. Also, the positive relationship between managerial ownership and abnormal accruals takes over the effect of managers non-beneficial holdings to support the entrenchment hypothesis. The manipulation of earnings is also impacted by the control variables. Financial leverage is positively related to earnings management while firm size and growth are negatively related to earnings management. The results have the potential to serve as a foundation for corporations to govern their approaches to managing earnings.