AN EVALUATION OF PREVAILING ACCOUNTING PRACTICE AROUND PUBLIC OFFERINGS IN NIGERIA

Abstract

Earnings management has become a popular practice among managers but despite its pervasiveness, it can still be difficult for the investors to detect due to the complexity of accounting rules. The practice has its social consequences that range from loss of investment by shareholders to total corporate failure. The main objective of this study was to investigate the prevailing practice of earnings management when Nigerian firms are about to issue shares to the public and after the issues. Specifically, the study (i) examined Nigeria firms engagement in earnings management when they are about to issue shares; and (ii) examined the extent, Nigeria firms engage in earnings management. The study covered the period between 2004 and 2011. Secondary data were employed and analyzed through panel estimated generalized least square (Cross-section random effects) method of regression analysis. The study found significant levels of earnings management (above 5% of total assets) in all the firms over the period of study, so, the study recommendes among others that the concerned regulatory agencies like The Nigerian Stock Exchange and the Security and Exchange Commission should make it mandatory for any firm that wants to issue shares to the public to include in its prospectus, a statement by the directors or professional accountant that its financial statement is free from managed earnings. The study therefore concludes that if the recommendations are implemented, earnings management before and after public offering could be reduced marginally.