Antecedents of Corporate Income Smoothing of Financially Distress Likelihood Quoted Companies in Nigeria

International Journal of Research and Scientific Innovation (IJRSI) | Volume VIII, Issue V, May 2021 | ISSN 2321–2705

Antecedents of Corporate Income Smoothing of Financially Distress Likelihood Quoted Companies in Nigeria

Rachel Konyefa Dickson (Ph.D.)
Department of Management, Faculty of Management Sciences,Niger Delta University

ABSTRACT
The incessant income smoothing of corporate organisations has generated much concern by corporate reporting practitioners and academics worldwide. Though income smoothing is legal, it is deceptive. This study focused on the antecedents of income smoothing by financial distress likelihood quoted companies in Nigeria. It specifically examined the firm size, Leverage, board independence, managerial ownership and board gender diversity on income smoothing of financial distress likelihood zone companies in Nigeria.
It is an experimental research design covering six (5) years from 2014 to 2019. The entirety of the study was 114 non-financial companies quoted on the Nigerian Stock Exchange, while 59 companies constituted the sample size arrived at using Altman’s Z-Score. The Eckle methodological model was used for the assessment of income smoothing before applying the dichotomous variable approach. Content analysis of annual financial reports of sampled companies was employed, and data were analysed using descriptive and inferential statistics such as Pearson correlation, variance inflation factor, panel and pooled least square regressions.
This study revealed that firm size, Leverage, board size, and managerial shares shareholdings have a positive relationship with income smoothing. Simultaneously, board independence and board gender diversity have no significant influence and were also negatively related to income smoothing of financial distress likelihood companies in Nigeria. We, therefore, recommend that an independent board made up of male and female of different disciplines and professional qualification in accounting and finance should be encouraged irrespective of the size of the firm. The recommendation is based on the need to ensure financial reporting quality instead of smoothing income even when the firm is at the threshold of financial distress in Nigeria

Keywords: Income Smoothing, Financial Distress Zone, Board and Firm Characteristics

1.INTRODUCTION
The incessant income smoothing of corporate firms either in safe, grey or financial distress likelihood zone has generated much concern by corporate reporting practitioners and academics worldwide. Companies are in financial distress zone when they possess high fixed costs, illiquid assets, or revenues sensitive to economic downturns (Kenton, 2019). Companies in financial distress zone find it extremely difficult to meet their financial obligations. Where they do, they struggle seriously to meet such obligations to their creditors. Management may be inclined to take actions to increase earnings of the company in financial distress zone when earnings are relatively low and to decrease earnings when earnings are relatively high, which is believed to be an alteration of accounting information(Abdullah, Al-Zabari, & Al Marshedi, 2018: Glaum, Keller, & Street, 2018). The main reasons deduced why managers engage in income smoothing are: maximising their wealth, reducing the perceived riskiness of the firm, enhancing firm value, meeting debt covenants,

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