Earnings Management Practices in listed Consumer Goods Manufacturing Firms in Nigeria

Abstract

Nigeria's manufacturing sector stands as a vital contributor to the nation's economy, driving industrialization, employment generation, and export diversification. Financial records are the heart of any business, giving an accurate and  timely  picture  of  its  financial  health  to  both  internal  and  external constituents. However the difference in the earnings management practices of listed consumer goods manufacturing firms in Nigeria has remained a subject f concern among participant in the Nigerian manufacturing sector. The study was carried out on selected consumer good manufacturing firms with a special focus on Ten (10) consumer goods firms in Nigeria using purposive sampling technique for the selection. The population of the study constituted twenty one (21) consumer goods firms in Nigeria registered and listed on the floor of the Nigerian Exchange Group (NXG) as specified on its official website as at May, 2024. All secondary data used were extracted from audited annual financial reports of selected consumer goods firms in Nigeria on Nigerian Exchange Group for the period 2009-2023. Principal Component Analysis (PCA) was used to analyse the differences in earnings management practices in listed consumer goods manufacturing firms in Nigeria. Findings from the result of PCA showed that PC1 represents the most dominant dimension of variation among the earnings management indicators. The loadings show that PC1 is heavily influenced by depreciation (DEP = 0.621) and cost of goods sold (COGS = 0.606). These high positive loadings suggest that firms manipulating depreciation and COGS policies tend to show similar patterns of earnings management. Meanwhile, accruals (ACC) have a strong negative loading (-0.427), indicating that firms with high usage of depreciation and COGS-based manipulation likely exhibit lower accrual-based manipulation. This contrast reflects a trade-off in earnings management strategies—some firms prefer real earnings management (like COGS/DEP), while others lean on accruals. The study concluded there are significant differences in the earnings management practice of listed consumer goods manufacturing firms in Nigeria. The study therefore recommends that firms should implement stronger internal controls to reduce managerial discretion in financial reporting.