Earnings Management and Financial Statement Reporting Quality of Deposit Money Banks in Nigeria

This study examined the effect of earnings management on the financial statement reporting quality of deposit money banks (DMBs) in Nigeria using panel data spanning 1994 to 2024. Specifically, it investigated the influence of earnings management on six dimensions of financial statement reporting quality: value relevance, timeliness, transparency, persistence and predictability, accrual quality, and accounting conservatism. An ex-post facto research design was adopted, and secondary data were obtained from the published audited annual reports of seventeen (17) purposively selected deposit money banks listed on the Nigerian Exchange Group. Earnings management was proxied using the Performance-Adjusted Modified Jones Model, and the Panel Least Squares (PLS) regression technique was employed for data analysis. The findings revealed that earnings management had a negative and statistically significant relationship with value relevance (β = -0.107823, p < 0.05), indicating that improved value relevance constrains earnings manipulation. Timeliness, transparency, and persistence and predictability exhibited statistically insignificant relationships with earnings management. However, accrual quality (β = 0.000379, p < 0.05) and accounting conservatism (β = 0.0000585, p < 0.05) showed positive and statistically significant relationships with earnings management. The study concludes that earnings management significantly influences selected dimensions of financial statement reporting quality among Nigerian deposit money banks, particularly value relevance, accrual quality, and accounting conservatism. It recommends that regulatory authorities strengthen monitoring and enforcement mechanisms, that banks improve corporate governance and internal control systems, and that external auditors intensify scrutiny of discretionary accruals to minimise earnings manipulation and enhance the credibility of financial reporting in the Nigerian banking sector.

Earnings management, financial statement reporting quality, value relevance, accrual quality, accounting conservatism, deposit money banks, Nigeria

1. Abiola, T. (2021). Earnings management in Nigerian deposit money banks: A study of the effectiveness and practices. Journal of Accounting and Finance, 13(2), 45-62. [Google Scholar] [Crossref]

2. Adebanjo, A. A., & Okere, W. (2024). Financial reporting quality and disclosure on stock price of listed deposit money banks in Nigeria. Asian Journal of Empirical Research, 14(4), 1-15. [Google Scholar] [Crossref]

3. Adebanjo, A. A., & Wisdom, O. (2024). Financial reporting quality and disclosure on stock price of listed deposit money banks in Nigeria. Asian Journal of Empirical Research, 14(4), 1-15. [Google Scholar] [Crossref]

4. Adebayo, O. A., & Olayinka, M. (2021). Working capital management and earnings manipulation: Evidence from Nigerian deposit money banks. Journal of Accounting and Financial Management, 7(2), 45-57. [Google Scholar] [Crossref]

5. Adebayo, O. T., & Musa, M. (2022). The impact of discretionary accruals on the financial performance of Nigerian deposit money banks. African Journal of Accounting, 13(1), 45-59. [Google Scholar] [Crossref]

6. Adegbite, T. A., & Ayeni, O. A. (2022). Earnings quality and financial reporting in the Nigerian banking sector. African Journal of Business Management, 16(4), 119-129. [Google Scholar] [Crossref]

7. Adeniran, A. T., & Alabi, S. A. (2020). The role of regulatory frameworks in controlling discretionary accruals and enhancing financial transparency in Nigerian banks. International Journal of Financial Transparency, 17(4), 120-135. [Google Scholar] [Crossref]

8. Allee, K., & Yohn, T. (2021). The effects of earnings management on investor perception and market liquidity. Journal of Accounting and Economics, 47(2-3), 148-176. [Google Scholar] [Crossref]

9. Dechow, P., Ge, W., & Schrand, C. (2020). Understanding earnings quality: A review of the concepts, trends, and research. Foundations and Trends in Accounting, 5(1), 1-55. [Google Scholar] [Crossref]

10. Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193-225. [Google Scholar] [Crossref]

11. Healy, P., & Wahlen, J. (2021). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365-383. [Google Scholar] [Crossref]

12. Hribar, P., & Collins, D. (2023). Errors in estimating accruals: Implications for empirical research. Accounting Review, 98(1), 145-170. [Google Scholar] [Crossref]

13. Ijaiya, M. A., & Olufemi, A. (2020). Earnings management, earnings quality, and financial reporting transparency in Nigerian deposit money banks. International Journal of Financial Studies, 8(2), 45-61. [Google Scholar] [Crossref]

14. Ijeoma, N. B., & Aronu, C. O. (2023). Earnings management practices and financial performance of banks in Nigeria. International Journal of Financial Research, 14(1), 98-107. [Google Scholar] [Crossref]

15. Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323-329. [Google Scholar] [Crossref]

16. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. [Google Scholar] [Crossref]

17. Jones, J. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193-228. [Google Scholar] [Crossref]

18. Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39(1), 163-197. [Google Scholar] [Crossref]

19. Nwachukwu, M. N., & Okoye, L. U. (2021). Discretionary accruals and the financial position of banks: Evidence from Ghana. Journal of Financial Management and Strategy, 20(1), 62-79. [Google Scholar] [Crossref]

20. Nwaobia, A. N., & Kwarbai, J. D. (2021). Accruals quality and asset valuation: Evidence from listed banks in Nigeria. Accounting and Taxation Review, 5(3), 65-76. [Google Scholar] [Crossref]

21. Ogbulu, O., & Oba, O. (2018). Discretionary accruals and earnings management: Evidence from Nigerian banks. Nigerian Journal of Banking and Finance, 12(3), 45-67. [Google Scholar] [Crossref]

22. Ogungbade, O. I., Adekoya, A. C., & Olugbodi, D. I. (2021). Audit quality and financial reporting quality of deposit money banks listed on the Nigerian Stock Exchange. Journal of Accounting, Finance and Auditing Studies, 7(1), 77-98. https://doi.org/10.32602/jafas.2021.004 [Google Scholar] [Crossref]

23. Ojianwuna, C. (2024). Financial reporting quality and stakeholders' investment decision in listed deposit money banks in Nigeria. International Journal of Business and Management, 2(2), 1-31. https://doi.org/10.56879/ijbm.v2i2.21 [Google Scholar] [Crossref]

24. Okolie, A. O. (2023). Audit quality and financial reporting quality in Nigerian deposit money banks. Journal of Contemporary Accounting Research, 2(1), 33-50. [Google Scholar] [Crossref]

25. Smith, A., & Brown, T. (2020). Earnings management, bank performance, and earnings quality. European Journal of Financial Studies, 39(3), 255-276. [Google Scholar] [Crossref]

26. Thomas, R., & Stevens, J. (2022). Bank profitability, earnings management, and the accrual quality of reported earnings. Journal of Financial and Banking Studies, 48(4), 233-245. [Google Scholar] [Crossref]

27. Ugwoke, R. O., Ezeabasili, A. C., & Agu, C. I. (2022). Discretionary accruals and earnings management in the Nigerian financial sector. The Nigerian Accountant, 55(1), 21-35. [Google Scholar] [Crossref]

28. Umoren, A., Ikpantan, I., & Ededeh, D. (2019). Earnings management and financial performance of deposit money banks in Nigeria. Research Journal of Finance and Accounting, 10(1), 1-10. [Google Scholar] [Crossref]

• The Indirect Effect of Liquidity and Activity on Company Value with Profitability as an Intervening Variable
• Effect of Financial Skills, Knowledge, and Attitude on The Financial Behaviour of Clergy
• A Decade of Review: Trends in Budget Execution and Financial Performance of Development Projects in Tanzania (2014/15-2023/24)
• The Influence of Pre-Project Planning on the Budget Absorption Rate of Public Funded Infrastructure Projects in Kenya a Comparative Case Study of Narok, Migori, and Kisii County Government Projects
• Assessment of Factors Influencing Digital Transformation in Hotels’ Facility Management in Abuja Metropolis, Nigeria