EFFECT OF EARNINGS MANAGEMENT ON FINANCIAL REPORTING QUALITY ;A CASE STUDY OF BUA CEMENT PLC

Abstract

This study examines the effect of earnings management on financial reporting quality using BUA Cement Plc as a case study. Earnings management was decomposed into accrual-based earnings management, real earnings management, and earnings smoothing, while financial reporting quality served as the dependent variable. The study is motivated by persistent concerns that managerial discretion in financial reporting continues to undermine the reliability, transparency, and decision-usefulness of financial statements in Nigeria, despite the adoption of International Financial Reporting Standards (IFRS) and the presence of regulatory institutions such as the Financial Reporting Council of Nigeria (FRCN) and the Securities and Exchange Commission (SEC). The study adopted an ex-post facto research design, relying on secondary data obtained from the audited annual financial statements of BUA Cement Plc and Nigerian Exchange Group (NGX) fact books covering the period 2020–2024. The Modified Jones Model was used to estimate discretionary accruals as a proxy for accrual-based earnings management. Data were analyzed using descriptive statistics, correlation analysis, and multiple regression techniques. The results revealed that accrual-based earnings management, real earnings management, and earnings smoothing all have significant negative effects on financial reporting quality.. However, control variables such as return on assets and firm size were found to have positive effects on financial reporting quality, while leverage exhibited a negative effect. The regression model showed a strong explanatory power with an R² value of 0.61, indicating that earnings management and control variables jointly explain a substantial proportion of variations in financial reporting quality. The study concludes that earnings management significantly impairs financial reporting quality in BUA Cement Plc and recommends stronger corporate governance mechanisms, improved regulatory oversight, and enhanced audit quality to reduce managerial opportunistic behavior and improve reporting transparency.