EFFECT OF EARNINGS MANAGEMENT ON VALUE RELEVANCE OF LISTED INDUSTRIAL GOODS FIRMS IN NIGERIA

Abstract

This study investigated the relationship between earnings management and value relevance of accounting information among listed industrial goods firms in Nigeria. Unlike prior studies that incorporated financial leverage as a moderating variable, this research focuses purely on the direct association between earnings management and value relevance, proxied by Market Price per Share and Price Earnings Ratio (P/E). Secondary data were obtained from the annual reports of ten (7) listed industrial goods firms for the period 2018–2024. The modified Jones model was used to estimate discretionary accruals as a measure of earnings management. Multiple regression analysis was conducted to evaluate the relationship between the study variables. The study examined how earnings management affects the value relevance of listed industrial goods firms in Nigeria, using Market Price per Share (MPS) and Price-Earnings Ratio (PER) as measures of value relevance, and Discretionary Accruals (DACC) and Income Smoothing (ISM) as indicators of earnings management. Based on 35 firm-year observations and controlling for Leverage (LEV) and Profitability (PTY), the results revealed that DACC and ISM had no statistically significant effect on MPS, with p- values. However, leverage showed a significant moderating influence, indicating that higher leverage strengthens the relationship between earnings management and value relevance. The results are revealed earnings management practices to significantly affect the market- based indicators of firm value. Similarly, Diagnostic tests confirmed the reliability of the regression results, showing no signs of multicollinearity or heteroskedasticity. The study contributes to the literature on financial reporting quality by providing empirical evidence on how accounting manipulation influences investor valuation decisions in emerging economies.

Keywords: Earnings management, Value relevance, Market price per share, Price earnings ratio, Industrial goods firms