EARNINGS MANAGEMENT PRACTICES AND CORPORATE VALUE OF LISTED PHARMACEUTICAL COMPANIES IN NIGERIA
Abstract
This study investigated the relationship between earnings management practices and the corporate valuation of listed pharmaceutical companies in Nigeria. The ex post facto research design was adopted as the appropriate research design. Data was collected from a sample of six relevant companies for a period of thirteen years - from 2010 to 2022. Data was extracted from the audited annual reports of the selected companies. Earnings management practices was measured using discretionary accruals management (DAC), and real activities management (REC) while corporate valuation was measured using company specific market capitalization (MCP), and book value (BKV). Additionally, firm size, measured by the log of total assets was included in the modelling to account for the effects of moderating variables. In addition to several diagnostic tests, the panel least square (PLS) estimation method was used for data analysis. The findings revealed that discretionary accruals management had a consistently negative but statistically insignificant relationship with both measures of corporate value - suggestive of its limited impact on corporate valuation in the sector. In contrast, real activities management reported significant relationships with all firm value measures. It positively influenced market capitalization indicating short-term boosts to market-based valuation metrics. However, it had a significant negative effect on book value, reflecting the depletion of resources and erosion of intrinsic asset value associated with operational manipulations. Based on the findings, the study recommended that companies adopt balanced earnings management practices, and also reduce excessive reliance on real activities management. It is further recommended that regulators should strengthen oversight mechanisms to reduce earnings manipulation and ensure compliance with financial reporting standards.
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