Effect of Capital Structure on Real and Accrual-Based Earnings Management in Sub-Sahara Africa
DOI:
https://doi.org/10.52962/ipjaf.2022.6.2.140Keywords:
Capital structure, real earnings management, accrual-based earnings management, sub-Sahara AfricaAbstract
The study examines the effect of Capital Structure (CS) on real and accrual-based earnings management among listed firms in Sub-Sahara Africa (SSA). Real Earnings Management (REM) and Discretional Accruals (DA) were proxies by Rowchowdhury (2006) and Khothari et al. (2005) models respectively. Secondary data used were obtained from annual reports of 276 non-financial listed firms from six countries for eleven years (2010 to 2020). A Generalized Method of Moments (GMM) estimator was used to analyze the data collected. The findings show that CS among firms in Kenya, Tanzania and Nigeria have positive and significant effects on REM while the negative and significant influence of CS among firms in Zimbabwe, South Africa and Ghana was observed on REM. Also, CS among firms in Kenya, Zimbabwe and Nigeria have negative and significant effects on DA. However, CS among firms in South Africa and Ghana have a positive influence on DA. The study concludes that firms in SSA substitute REM and DA forms of earnings management. Hence, the study recommends that capital providers in the sampled countries should maintain sufficient attention to both REM and DA for sustainable leveraging, and management of opportunistic selections of accounting choices, but increase the use of REM.
Downloads
References
Abubakar, A. H. Lawal, A. M. & Mohamed, M. I. (2020) Ownership Structure and Real Earnings Management: Evidence from Nigeria. Journal of Management Theory and Practice (JMTP), 1(3), 43-50
Alomush, A. M. S., Al-Attar, A. M., & Masadeh, W. M. (2018). The impacts of free cash surplus flows, audit quality and ownership on earnings management: The Jordan case. Corporate Ownership & Control, 15(4), 222-230.
Alsharairi, M. & Salama, A., (2011), “Does High Leverage Impact Earnings Management? Evidence from Non-Cash Mergers and Acquisitions”, Journal of Financial and Economic Practice, 12(1), 17-33.
Anabelen, T. P., Younghwan, L. & Jeong, H. K. (2020). Effect of Leverage on Real Earnings Management: Evidence from Korea. MPDI. 3(5), 1-20.
Anagnostopoulou, S., & Tsekrekos, A. (2016). The Effect of Financial Leverage on Real and Accrual-Based Earnings Management, Accounting and Business Research, 1-46 and the Caribbean Accounting and Management, 63(2), 1–21.
Bassiouny, S., Soliman, M., & Ragab, A., (2016), “The Impact of Firm Characteristics on Earnings Management: An Empirical Study on the Listed Firms in Egypt”, the Business and Management Review, 7(2), 91-101.
Das, R. C., Mishra, C. S. & Rajib. P. (2018). Firm-specific Parameters and Earnings Management: A Study in the Indian Context. Global Business Review 19(5), 1240–1260.
Doukakis, L., (2014). The Effect of Mandatory IFRS Adoption on Real and Accrual-Based Earnings Management Activities, Journal of Accounting and Public Policy, 33(6), 551-572.
Elkala, T. (2017). An Empirical Investigation of Earnings Management in the MENA Region. Unpublished Ph.D dissertation. University of the West of England.
Ghaleb, B. A. Kamardin, H. & Tabash, M. I. (2020) Family ownership concentration and real earnings management: Empirical evidence from an emerging market, Cogent Economics & Finance, 8(1), 45-56.
Gujarati, D. & Porter, D. (2003) Multicollinearity: What Happens If the Regressors Are Correlated? In: Basic Econometrics, 4th Edition, McGraw-Hill, Boston, MA, 363.
Hassan, T. M. & AbdulRahaman, A. (2020). The Role of Corporate Governance on the Relationship Between IFRS Adoption and Earnings Management: Evidence from Bangladesh. International Journal of Financial Research. 11(4), 329-345.
Jha, A. (2013). Earnings Management around Debt Covenant Violations – An Empirical Investigation using a Large Sample of Quarterly Data, Journal of Accounting, Auditing, and Finance, 28(4): 369-396.
Khanh, T. & Thu, J. (2019). The effect of financial leverage on real and accrual-based earnings management in Vietnamese firms. Economics and Sociology, 12(4), 299-312.
Kim, J. H., Lee, S. H., & Yoo, Y. K. (2020) Real earnings management and the cost of debt capital: international evidence, Asia-Pacific Journal of Accounting and Economics, 27(2), 151-172.
Kothari, S., Leone, P., & Wasley, C., (2005), “Performance Matched Discretionary Accrual Measures”, Journal of Accounting and Economics, 39(11), 163-197.
Lara, J., Osma, B., & Penalva, F. (2012). Accounting Conservatism and the Limits to Earnings Management, www.ssrn.com.
Lastari, N. & Aeni, N. (2019). The Effect of Audit Quality and Earnings Management on Firm Performance. Advances in Social Science, Education and Humanities Research 3(7), 36-41.
Lemma, T., Negash, M., & Mlilo, M. (2013). Determinants of Earnings Management: Evidence from around the World, www.ssrn.com.
Leuz, C., Nanda, D., & Wysocki, P. (2003). Earnings management and investor protection: An international comparison, Journal of Financial Economics, 69(4), 505–527.
Mercedes, P. M., Ester G. G. & Jose, M. S. (2019). Corporate social responsibility and its effect on earnings management: An empirical research on Spanish firms, Total Quality Management & Business Excellence, 2(3), 1-17.
MohdSuffian, M. T., Osman, A. H., MohdSanusi, Z., & Ridzuan, A. R. (2020). The Effects of Earnings Management, Free Cash Flow and Industry on Firm Performance: Empirical Evidence from Shariah-Compliant Firms in Malaysia, International Journal of Academic Research in Accounting, Finance and Management Sciences, 10 (1), 367-377.
Musa, A. F., & Muhammad, A. I. (2018). Earnings Management of Listed Deposit Banks (DMBs) in Nigeria: A Test of Chang, Shen and Fang Model, International Journal of Finance and Accounting, 7(2), 49-55.
Nanik, L., & Nur, A. (2019) The Effect of Audit Quality and Earnings Management on Firm Performance. Advances in Social Science, Education and Humanities Research, 3(77), 36-41
Neeraj, K. S., Amit, K., Nandita, L., Satvik, B., & Tanya, A. (2019). Impact of Corporate Governance on Earnings Management: Large Sample Evidence from India, Asian Economic and Financial Review, 9(12), 1335-1345.
Nelson, M. W., & Ntui, P. P. (2018). Corporate governance compliance and accrual earnings management in eastern Africa: Evidence from Kenya and Tanzania, Managerial Auditing Journal, 33(2), 171-191.
Ningrum, A. S., Wardhani, R., & Mita, A. F. (2019). A Cross Country Study of Indirect Effect of IFRS Adoption on Earnings Management. Journal of Accounting and Investment, 20(3), 198-212.
Nyatichi, V., Iraya, C., Mwangi, M. & Njihia, J. (2020). Corporate Governance, Firm Characteristics and Earnings Management of Companies Listed at Nairobi Securities Exchange. journals.uonbi.ac. 10 (4), 54-70.
Ogiriki, T., & Iweias, S. S., (2020). Financial Leverage on Earnings Management of Quoted Manufacturing Firms in Nigeria: International Journal of Management Science and Business Administration, 6(4), 7-21.
Okafor, T. G., Ezeagba, C. E., & Onyali, C. I. (2018). Effect of Earnings Management on Performance of Corporate Organisation in Nigeria, International Journal of Business Management and Economic Review. 1(3), 88-101.
Orazalin, N. & Akhmetzhanov, R. (2019). "Earnings management, audit quality, and cost of debt. Evidence from a Central Asian economy", Managerial Auditing Journal, 15(43), 342-351.
Owusu, A., Zalata, A. M., Omoteso, K., & Elamer, A. A. (2020). Is There a Trade?Off Between Accrual?Based and Real Earnings Management Activities in the Presence of Male Auditors? Journal of Business Ethics, 18(11), 386-395.
Paolo, S. & Laura, M. (2017): Firm- and Country-Level Attributes as Determinants of Earnings Management: an Analysis for Latin American Firms, Emerging Markets Finance and Trade, DOI: 10.1080/1540496X.2017.1410127 1-43.
Rajeevan, S. & Ajward, R. (2020). Board characteristics and earnings management in Sri Lanka. Journal of Asian Business and Economic Studies, 27(1), 2-18.
Rodr?guezpeez, G., & Vanhemmen, S., (2010) Debt, diversification and earnings management. Journal of Accounting and Public Policy, 29 (2), 138–159.
Ross, S., (1977). The determination of capital structure: the incentive signalling approach. Bell Journal of Economics, 3(2) 40-49.
Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42 (3): 335-370.
Saline, O. (2020). Ownership Structure and Earnings Management. Evidence from Listed non-financial companies in Kenya. Unpublished MSc. Thesis, School of Business, University of Nairobi.
Sivanandan, P. & AbdulWahab, N. S. (2020). Mediating Effects of Remuneration on Earnings Management and Firm Equity Value. Asian Journal of Accounting and Governance. 14(1), 1-16.
Spence, M., (1973). Job market signalling. Quarterly Journal of Economics, 87(3):355-374.
Sun, Y., Wang, W., Wang, X. F., & Zhang, W., (2013). Shareholder activism and earnings management incentives: an empirical examination of shareholder proposals in the United States. Journal of International Management and Accounting, 24(3), 154-162.
Swai, J., (2016), “The Impact of Corporate Governance and Firm-Specific Characteristics on Earnings Management: Evidence from East Africa”, Research Journal of Finance and Accounting, 7(8), 139-156.
Ugrin, J. C., Mason, T. W. & Emuley, A. (2017), Culture's consequence: The relationship between income-increasing earnings management and IAS/IFRS adoption across cultures. Advancing in Accounting. 2(5); 1-12.
Wallace, D.N., & Pornsit, J. (2004). Earnings management following duality creating successions: Ethno-statistics, impression management. Retrieved from a Social Science Research Network.
Waweru, N., & Riro, G., (2013), “Corporate Governance, Firm Characteristics and Earnings Management in an Emerging Economy”, Jamar, 1(2), 43-64.
Xuejun, W., (2014). New evidence on real earnings management: An international investigation. PhD thesis: Auckland University of Technology.
Published
Issue
Section
License
Copyright (c) 2022 Indian-Pacific Journal of Accounting and Finance
This work is licensed under a Creative Commons Attribution 4.0 International License.
Site users
Copyright of all articles published in the Indian Pacific Journal of Accounting and Finance (IPJAF) belongs to their respective authors. Site users are permitted to download and print the articles for personal use. Further reproduction and/or distribution is not permitted, except for brief excerpts or quotations intended for inclusion in some other original works. In this case, proper attribution must be made to the author/copyright holder, and the place of publication must be acknowledged. Altering, editing or otherwise modifying the content of information obtained from the Indian Pacific Journal of Accounting and Finance (IPJAF) is a breach of copyright.
Authors
While you retain the copyright of your original material, by publishing in the Indian Pacific Journal of Accounting and Finance (IPJAF) , you will have agreed to the following contractual terms:
- The article is the original work of the stated author(s).
- The work has not been published previously.
- If the Article contains copyright material owned by others, written permission has been obtained from the copyright owner(s) to republish such material in any print or electronic medium and that you have included appropriate acknowledgement of such rights in the Article.
- The author agrees to grant a non-exclusive license to the Indian Pacific Journal of Accounting and Finance (IPJAF) to communicate the work to the public.
- The Indian Pacific Journal of Accounting and Finance (IPJAF) may use the article for publicity purposes.
- The Indian Pacific Journal of Accounting and Finance (IPJAF) may publish the article on third-party sites.
- Any subsequent publication of the article by the authors will carry the acknowledgement: First published in the Indian Pacific Journal of Accounting and Finance (IPJAF) [http://ipjaf.omjpalpha.com]
Disclaimer
The Indian Pacific Journal of Accounting and Finance (IPJAF) has taken all reasonable measures to ensure that material contained in this website is the original work of the author(s). However, the Journal gives no warranty and accepts no responsibility for the accuracy or the completeness of the material; no reliance should be made by any user on the material. The user should check with the authors for confirmation.
Articles published in the Indian Pacific Journal of Accounting and Finance (IPJAF) do not represent the views held by the editors and members of the editorial board. Authors are responsible for all aspects of their articles except the editorial screen design.
