Growth in revenue and earnings management practices in Nigeria pre- and post-IFRS adoption periods

Abstract

The purpose of the study is to examine the revenue growth and association with earnings management practices of firms in Nigeria pre- and post-International Financial Reporting Standards (IFRS) adoption years. The study uses 87 nonfinancial firms over 19 years, nine years pre-IFRS (2003 to 2011), and nine years post-IFRS (2012-2020) for a total of 1566 firm-year observations. The panel regression estimate (fixed effect and random effect) was used to test the association between revenue growth and discretionary accruals, while the paired sample t-test was used to test the effect of IFRS adoption. The finding shows that decreasing growth rates resulted in increasing earnings management practices, probably due to the desire to maintain steady published performance figures in the pre-IFRS era, while decreasing growth rates resulted in income-decreasing earnings management practices in post-IFRS years, a rather surprising result. The finding also suggests that the practice of earnings manipulation is higher post-IFRS, indicating lower earnings quality. While managers engaged in income-increasing earnings management practices pre-IFRS, surprisingly, income-decreasing earnings management practices were detected post-IFRS. The finding deviates from norms and popular assumptions and suggests that the adoption of global standards might not necessarily mean limiting the abilities of managers to manipulate the earnings of companies. While changing standards may affect the nature of earnings manipulation, it is unlikely to prevent or deter the practice in general. The implication is that the application of IFRS will not deter earnings management practices.