Earnings Management, Audit Committee and Firm Value of Quoted Oil and Gas Companies in Nigeria
Keywords:
accruals, audit committee, audit committee independence, earnings management, firm value
Abstract
Financial scandals caused by the widespread overstating and manipulation of critical information in annual financial report of businesses are on the increase and users of the information are demanding transparency. This study was conducted to investigate the effect of earnings management and audit committee on firm value of quoted oil and gas firms in Nigeria. Ex-post facto research design was adopted. The population of the study was the nine oil and gas firms listed on the Nigerian Exchange (NGX) as at 31st December, 2022. The study employed the nine firms as sample size using the census sampling technique. Data were obtained from the audited annual financial reports of the firms for a period of 2010-2022. Panel least square (PLS) was used in analysing the collected data. The study found that earnings management has significant negative effect on firm value and audit committee has insignificant effect on firm value. The moderating effect of audit committee independence was discovered to be significant over the relationship between earnings management and firm value using accruals as proxy of earnings management. The reverse was the result when earnings management was proxied with total assets and profit. The study concluded that earnings management is a significant underlying factor that can negatively influence the value of firms and cause decrease in its intrinsic value. It was recommended that investors should pay attention to corporate governance practice by companies especially the independence of the audit committee, as it influences financial success of listed oil and gas firms in Nigeria.
References
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Agyemang-Mintah, P., & Schadewitz, H. (2018). Audit committee adoption and firm value: evidence from UK financial institutions. International Journal of Accounting and Information Management, 26(1), 205–226 https://doi.org/10.1108/IJAIM-04-2017-0048
Akuntansi, R., & Url, K. I. (2020). Analysis of csr disclosure , earnings persistency , earnings growth , and business size on earnings management with institutional ownership as a moderating variable case study on LQ45 companies listed on the Indonesia Stock Exchange ( IDX ) 2016-2020 ).
Al-Shattarat, B. (2021). The consequence of earnings management through discretionary accruals on the value relevance in Saudi Arabia. Cogent Business and Management, 8(1). https://doi.org/10.1080/23311975.2021.1886473
Alex Johanes Simamora, Atika, & Masculine Muhammad Muqorobin. (2022). Real earnings management and firm value: examination of costs of real earnings management. Journal Akuntansi, 26(2), 240–262. https://doi.org/10.24912/ja.v26i2.935
Alexander, N., & Christina, S. (2022). Does Earnings Management Practice Increase Stock Return ? TIJAB ( The International Journal of Applied Business), 6(2), 209–216.
Ali, M. H., & Meah, M. R. (2021). Factors of audit committee independence: An empirical study from an emerging economy. Cogent Business and Management, 8(1). https://doi.org/10.1080/23311975.2021.1888678
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Dare, E. (2021). Income smoothing, earnings management and the credibility of accounting information. International Journal of Business Economics and Management, 8(4), 292–306. https://doi.org/10.18488/journal.62.2021.84.292.306
Dewi, D. N., Murhadi, W. R., & Sutejo, B. S. (2023). Financial Ratios, Corporate Governance, and Macroeconoic Indicators in Predicting Financial Distress. Journal of Law and Sustainable Development, 11(4), 01-18. https://doi.org/10.55908/sdgs.v11i4.893
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Galal, H. M., Soliman, M. M., & Bekheit, M. B. (2022). The relation between audit committee characteristics and earnings management: evidence from firms listed on the Egyptian stock market. American Journal of Industrial and Business Management, 12(09), 1439–1467 https://doi.org/10.4236/ajibm.2022.129080
Folajimi, A. F., Aguguoma, T. A., Ajah, C. C., Busari, T. A., Desi, A., & Obasi, M. O. (2023). Corporate Fraud, Earnings management and Firm Value: Empirical Application of M-Scores. Journal of Law and Sustainable Development, 11(4), 01-26. https://doi.org/10.55908/sdgs.v11i4.612
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Harban, F. J. M. J., Ali, B. J. A., & Oudat, M. S. (2021). The effect of financial risks on the financial performance of banks listed on bahrain bourse: An empirical study. Information Sciences Letters, 10(1), 71–89 https://doi.org/10.18576/isl/10S105
Iriyadi, I. (2019). Prevention of earnings management through audit committee and audit quality in the award-winning and non-winning companies. Journal of Accounting Research, Organization and Economics, 2(2), 155–169 https://doi.org/10.24815/jaroe.v2i2.14631
Kappel, M. (2022). Gross Profit Definition - What is Gross Profit. https://www.shopify.co.uk/encyclopedia/gross-profit
Khosheghbal, M., Amiri, A., & Homayoon, A. (2017). International journal of economics and financial issues role of audit committees and board of directors in reducing earning management of companies listed in Tehran stock exchange. International Journal of Economics and Financial Issues, 7(6), 147–153. http:www.econjournals.com
Kinyua, B. (2022). Information Asymmetry and Dividend Payout Policy: A Critical Literature Review. Development, African Journal, Finance, 1(2), 50–64.
Krismiaji, K. & Sumayyah, S. (2023). Audit quality, audit opinion, and earnings management: Indonesian evidence. Journal of Business and Information Systems, 4(2), 103–113.
Kusumaningtyas, M., Chariri, A., & Yuyetta, E. N. A. (2019). Information asymmetry, audit quality, and institutional ownership on earnings management: evidence from mining companies listed on the Indonesia stock exchange. International Journal of Engineering and Advanced Technology, 8(5C), 126–139. https://doi.org/10.35940/ijeat.E1018.0585C19
Mardessi, S. M., & Fourati, Y. M. (2020). The impact of audit committee on real earnings management : evidence from Netherlands. Corporate Governance and Sustanability Review 4(1), 33–46.
Miko, N. U., & Sahnun, L. (2018). Analyses of earnings management practice in Nigeria: evidence from listed non- financial industries. KASU Journal of Accounting Research and Practice, 7(2), 131–150.
Mordi, J.U. & Ebiagban, O.F. (2022). Earning management, firm size and institutional ownership : evidence from Nigerian manufacturing firms. Finance and Accounting Research Journal, 4(5), 310–323. https://doi.org/10.51594/farj.v4i5.424
Nichilo, S. D. (2022). Detecting Earnings Management practices in European Insurance sector : purpose and application of accrual modelling and distribution of earning. European Journal of Management Issues, 30(3), 165–176. https://doi.org/10.15421/192215
Njagi, J. N., Josiah, A., Kisaka, S. E., & Iraya, C. (2017). Capital structure, firm efficiency and firm value: the case of listed non-financial firms in Kenya. European Journal of Business and Management, 9(22), 71–81. www.iiste.org
Ohaka, J. D., & Imaerele, A. T. (2018). Audit committee independence and corporate financial reporting quality in aluminum corrugating companies in Rivers State. International Jornal of Economics and Financial Management, 3(1), 56–65.
Orji, U. J. (2020). The Nigerian oil and gas industry content development act and gatt treaty obligations: on a path of harmony or discord? Latin American Journal of Trade Policy, 3(7), 56. https://doi.org/10.5354/0719-9368.2020.55413
Özcan, A. (2021). Audit Committee and Firm Value: an empirical Investigation. Muhasebe Bilim Dünyası Dergisi, 23(2), 204–221. https://doi.org/10.31460/mbdd.756299
Paul, A. (2020). Earnings management and financial distress : an analysis of Indian textile companies. NMIMS Journal Of Economics And Public Policy, 5(3), 40–53.
Ramadan, A., Oroud, Y., Makhlouf, M., & Soda, M. (2021). The moderating effect of audit quality on the relationship between information asymmetry and earnings management: Evidence from Jordan. Afro-Asian J. of Finance and Accounting, 1(1), 1 https://doi.org/10.1504/aajfa.2021.10042896
Reguera-Alvarado, N., de Fuentes, P., & Laffarga, J. (2019). Do auditors mitigate earnings management during economic crisis? Revista de Contabilidad-Spanish Accounting Review, 22(1), 6–20. https://doi.org/10.6018/rcsar.22.1.354271
Saeed, A., Ali, Q., Riaz, H., & Khan, M. A. (2022). Audit committee independence and auditor reporting for financially distressed companies: evidence from an emerging economy. SAGE Open, 12(2) https://doi.org/10.1177/21582440221089951
Subanidja, S., Rajasa, A., Suharto, E., & Atmanto, J. D. (2016). The determinants of firm value: The role of earnings management and good corporate governance. Corporate Ownership and Control, 13(4), 609–615 https://doi.org/10.22495/cocv13i4c4p10
Sugata R. (2019). Earnings management through real activities manipulation. Journal of Accounting and Economics, 7(5), 335–370.
Sukesti, F., Wibowo, E., & Prakasiwi, A. (2020). The Factors that Influence on Firm Value and Company Performance as Mediation Variables (Study Manufacturing Companies period 2015-2017). 1st International Conference on Economics, Management, Accounting and Business. https://doi.org/10.4108/eai.8-10-2018.2288692
Susanto, Y. K. (2018). The Effect of Audit Committees and Corporate Governance on Earnings Management: Evidence from Indonesia Manufacturing Industry. Journal Bisnis Dan Akuntansi, 15(2), 157–167.
Tiron-tudor, A. (2016). Global Encyclopedia of Public Administration, Public Policy, and Governance. Global Encyclopedia of Public Administration, Public Policy, and Governance, March. https://doi.org/10.1007/978-3-319-31816-5
Tulcanaza-Prieto, A. B., & Lee, Y. (2022). Real earnings management, firm value, and corporate governance: evidence from the korean market. International Journal of Financial Studies, 10(1). https://doi.org/10.3390/ijfs10010019
Tuovila, A. (2022). What Are Accruals How Accrual Accounting Works, With Examples.
Tuovila, A. (2020). Audit Committee: Definition, How They are Used, and Purpose. https://www.investopedia.com/terms/a/audit-committee.asp
Zeithaml, V.A. (2021). Service quality, profitability and the economic worth of customers: what we know and what we need to learn. Journal of the Academy of Marketing Science, 28(1). https://doi.org/10.1177/0092070300281007
Abdul, R., Rachmat, H., Ligar, A., & Gumilar, I. (2019). Capital structure, profitability and firm value : an empirical analysis. International Journal of Innovation, Creativity and Change, 6(6), 182–192.
Abdulfatah, L. A., Academy, N. D., Yahaya, O. A., & Academy, N. D. (2023). Can auditors reduce earnings management activities ? July 2022 https://doi.org/10.1108/RAF-10-2022-022x
Abu, Y., Nur, S., Binti, H., Khairil, L., & Khairi, F. (2015). The relationship between audit committee characteristics and earnings management among Jordanian listed companies: proposing conceptual framework. Research Journal of Finance and Accounting (Online), 6(18), 2222–2847.
Afrizal, J., Gamayuni, R. R., & Syaipudin, U. (2021). Effect of earnings management on firm value with corporate governance as a moderating variable. International Journal for Innovation Education and Research, 9(2), 262–268. https://doi.org/10.31686/ijier.vol9.iss2.2954
Agyemang-Mintah, P., & Schadewitz, H. (2018). Audit committee adoption and firm value: evidence from UK financial institutions. International Journal of Accounting and Information Management, 26(1), 205–226 https://doi.org/10.1108/IJAIM-04-2017-0048
Akuntansi, R., & Url, K. I. (2020). Analysis of csr disclosure , earnings persistency , earnings growth , and business size on earnings management with institutional ownership as a moderating variable case study on LQ45 companies listed on the Indonesia Stock Exchange ( IDX ) 2016-2020 ).
Al-Shattarat, B. (2021). The consequence of earnings management through discretionary accruals on the value relevance in Saudi Arabia. Cogent Business and Management, 8(1). https://doi.org/10.1080/23311975.2021.1886473
Alex Johanes Simamora, Atika, & Masculine Muhammad Muqorobin. (2022). Real earnings management and firm value: examination of costs of real earnings management. Journal Akuntansi, 26(2), 240–262. https://doi.org/10.24912/ja.v26i2.935
Alexander, N., & Christina, S. (2022). Does Earnings Management Practice Increase Stock Return ? TIJAB ( The International Journal of Applied Business), 6(2), 209–216.
Ali, M. H., & Meah, M. R. (2021). Factors of audit committee independence: An empirical study from an emerging economy. Cogent Business and Management, 8(1). https://doi.org/10.1080/23311975.2021.1888678
Ardaniel, F. (2022). Earning management and financial performance in real estate company in Indonesia. Archives of Business Research, 10(1). https://doi.org/10.14738/abr.101.11583
Dadbeh, F., & Mogharebi, N. (2013). A study on effect of information asymmetry on earning management: Evidence from Tehran Stock Exchange. Management Science Letters, 3(7), 2166–2166. https://doi.org/10.5267/j.msl.2013.06.001
Dare, E. (2021). Income smoothing, earnings management and the credibility of accounting information. International Journal of Business Economics and Management, 8(4), 292–306. https://doi.org/10.18488/journal.62.2021.84.292.306
Dewi, D. N., Murhadi, W. R., & Sutejo, B. S. (2023). Financial Ratios, Corporate Governance, and Macroeconoic Indicators in Predicting Financial Distress. Journal of Law and Sustainable Development, 11(4), 01-18. https://doi.org/10.55908/sdgs.v11i4.893
Dian, A., Nur, P. A. M., & Yani, P. (2020). Earning management, business strategy, and bankruptcy risk: evidence from Indonesia. Toshiba. Cell Journal, 6(2). http://doi.org/10.1016/j.heliyon.2020.e03317
Galal, H. M., Soliman, M. M., & Bekheit, M. B. (2022). The relation between audit committee characteristics and earnings management: evidence from firms listed on the Egyptian stock market. American Journal of Industrial and Business Management, 12(09), 1439–1467 https://doi.org/10.4236/ajibm.2022.129080
Folajimi, A. F., Aguguoma, T. A., Ajah, C. C., Busari, T. A., Desi, A., & Obasi, M. O. (2023). Corporate Fraud, Earnings management and Firm Value: Empirical Application of M-Scores. Journal of Law and Sustainable Development, 11(4), 01-26. https://doi.org/10.55908/sdgs.v11i4.612
Harakeh, M. (2017). Information Asymmetry , Accounting Standards , and Accounting Conservatism. Ph.D. Thesis in Accounting, The University of Manchester, United Kingdom.
Harban, F. J. M. J., Ali, B. J. A., & Oudat, M. S. (2021). The effect of financial risks on the financial performance of banks listed on bahrain bourse: An empirical study. Information Sciences Letters, 10(1), 71–89 https://doi.org/10.18576/isl/10S105
Iriyadi, I. (2019). Prevention of earnings management through audit committee and audit quality in the award-winning and non-winning companies. Journal of Accounting Research, Organization and Economics, 2(2), 155–169 https://doi.org/10.24815/jaroe.v2i2.14631
Kappel, M. (2022). Gross Profit Definition - What is Gross Profit. https://www.shopify.co.uk/encyclopedia/gross-profit
Khosheghbal, M., Amiri, A., & Homayoon, A. (2017). International journal of economics and financial issues role of audit committees and board of directors in reducing earning management of companies listed in Tehran stock exchange. International Journal of Economics and Financial Issues, 7(6), 147–153. http:www.econjournals.com
Kinyua, B. (2022). Information Asymmetry and Dividend Payout Policy: A Critical Literature Review. Development, African Journal, Finance, 1(2), 50–64.
Krismiaji, K. & Sumayyah, S. (2023). Audit quality, audit opinion, and earnings management: Indonesian evidence. Journal of Business and Information Systems, 4(2), 103–113.
Kusumaningtyas, M., Chariri, A., & Yuyetta, E. N. A. (2019). Information asymmetry, audit quality, and institutional ownership on earnings management: evidence from mining companies listed on the Indonesia stock exchange. International Journal of Engineering and Advanced Technology, 8(5C), 126–139. https://doi.org/10.35940/ijeat.E1018.0585C19
Mardessi, S. M., & Fourati, Y. M. (2020). The impact of audit committee on real earnings management : evidence from Netherlands. Corporate Governance and Sustanability Review 4(1), 33–46.
Miko, N. U., & Sahnun, L. (2018). Analyses of earnings management practice in Nigeria: evidence from listed non- financial industries. KASU Journal of Accounting Research and Practice, 7(2), 131–150.
Mordi, J.U. & Ebiagban, O.F. (2022). Earning management, firm size and institutional ownership : evidence from Nigerian manufacturing firms. Finance and Accounting Research Journal, 4(5), 310–323. https://doi.org/10.51594/farj.v4i5.424
Nichilo, S. D. (2022). Detecting Earnings Management practices in European Insurance sector : purpose and application of accrual modelling and distribution of earning. European Journal of Management Issues, 30(3), 165–176. https://doi.org/10.15421/192215
Njagi, J. N., Josiah, A., Kisaka, S. E., & Iraya, C. (2017). Capital structure, firm efficiency and firm value: the case of listed non-financial firms in Kenya. European Journal of Business and Management, 9(22), 71–81. www.iiste.org
Ohaka, J. D., & Imaerele, A. T. (2018). Audit committee independence and corporate financial reporting quality in aluminum corrugating companies in Rivers State. International Jornal of Economics and Financial Management, 3(1), 56–65.
Orji, U. J. (2020). The Nigerian oil and gas industry content development act and gatt treaty obligations: on a path of harmony or discord? Latin American Journal of Trade Policy, 3(7), 56. https://doi.org/10.5354/0719-9368.2020.55413
Özcan, A. (2021). Audit Committee and Firm Value: an empirical Investigation. Muhasebe Bilim Dünyası Dergisi, 23(2), 204–221. https://doi.org/10.31460/mbdd.756299
Paul, A. (2020). Earnings management and financial distress : an analysis of Indian textile companies. NMIMS Journal Of Economics And Public Policy, 5(3), 40–53.
Ramadan, A., Oroud, Y., Makhlouf, M., & Soda, M. (2021). The moderating effect of audit quality on the relationship between information asymmetry and earnings management: Evidence from Jordan. Afro-Asian J. of Finance and Accounting, 1(1), 1 https://doi.org/10.1504/aajfa.2021.10042896
Reguera-Alvarado, N., de Fuentes, P., & Laffarga, J. (2019). Do auditors mitigate earnings management during economic crisis? Revista de Contabilidad-Spanish Accounting Review, 22(1), 6–20. https://doi.org/10.6018/rcsar.22.1.354271
Saeed, A., Ali, Q., Riaz, H., & Khan, M. A. (2022). Audit committee independence and auditor reporting for financially distressed companies: evidence from an emerging economy. SAGE Open, 12(2) https://doi.org/10.1177/21582440221089951
Subanidja, S., Rajasa, A., Suharto, E., & Atmanto, J. D. (2016). The determinants of firm value: The role of earnings management and good corporate governance. Corporate Ownership and Control, 13(4), 609–615 https://doi.org/10.22495/cocv13i4c4p10
Sugata R. (2019). Earnings management through real activities manipulation. Journal of Accounting and Economics, 7(5), 335–370.
Sukesti, F., Wibowo, E., & Prakasiwi, A. (2020). The Factors that Influence on Firm Value and Company Performance as Mediation Variables (Study Manufacturing Companies period 2015-2017). 1st International Conference on Economics, Management, Accounting and Business. https://doi.org/10.4108/eai.8-10-2018.2288692
Susanto, Y. K. (2018). The Effect of Audit Committees and Corporate Governance on Earnings Management: Evidence from Indonesia Manufacturing Industry. Journal Bisnis Dan Akuntansi, 15(2), 157–167.
Tiron-tudor, A. (2016). Global Encyclopedia of Public Administration, Public Policy, and Governance. Global Encyclopedia of Public Administration, Public Policy, and Governance, March. https://doi.org/10.1007/978-3-319-31816-5
Tulcanaza-Prieto, A. B., & Lee, Y. (2022). Real earnings management, firm value, and corporate governance: evidence from the korean market. International Journal of Financial Studies, 10(1). https://doi.org/10.3390/ijfs10010019
Tuovila, A. (2022). What Are Accruals How Accrual Accounting Works, With Examples.
Tuovila, A. (2020). Audit Committee: Definition, How They are Used, and Purpose. https://www.investopedia.com/terms/a/audit-committee.asp
Zeithaml, V.A. (2021). Service quality, profitability and the economic worth of customers: what we know and what we need to learn. Journal of the Academy of Marketing Science, 28(1). https://doi.org/10.1177/0092070300281007
Published
2024-02-10
How to Cite
Ajibola, O. A., Akinadewo, I. S., Igbekoyi, O. E., & Obamoyegun, O. J. (2024). Earnings Management, Audit Committee and Firm Value of Quoted Oil and Gas Companies in Nigeria. European Journal of Science, Innovation and Technology, 4(1), 125-146. Retrieved from https://ejsit-journal.com/index.php/ejsit/article/view/369
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Copyright (c) 2024 Omobolanle A. Ajibola, Israel S. Akinadewo, Olusola E. Igbekoyi, Oluwapomile J. Obamoyegun
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