EFFECT OF CREATIVE ACCOUNTING ON SHAREHOLDERS WEALTH AMONG

LISTED DEPOSITED BANKS IN NIGERIA

OLAFUSI BUKOLA VICTORIA

MATRIC NO: 170601116

A PROJECT SUBMITTED TO THE DEPARTMENT OF ACCOUNTING, FACULTY

OF MANAGEMENT SCIENCES, ADEKUNLE AJASIN UNIVERSITY, AKUNGBA

AKOKO, ONDO STATE, IN PARTIAL FULFILMENT FOR THE AWARD OF

BACHELOR OF SCIENCE (B.Sc.) DEGREE IN ACCOUNTING.

SUPERVISOR: MR A.E ADEGBOYEGUN

FEBRUARY, 2023

1
 DECLARATION
I, OLAFUSI BUKOLA VICTORIA with the Matriculation Number 170601116, declare that

this research was carried out under the supervision of the Department of Accounting, Adekunle

Ajasin University, Akungba-Akoko, Ondo State. I declare that this project has not been

presented either wholly or partially for award of any degree elsewhere.

________________________
Olafusi Bukola Victoria Signature & Date

2
 CERTIFICATION
This is to certify that this project was carried out by OLAFUSI BUKOLA VICTORIA, titled;

“EFFECT OF CREATIVE ACCOUNTING ON SHAREHOLDERS WELATH AMONG

LISTED DEPOSITED BANKS IN NIGERIA” has successfully passed the anti-plagiarism test

and does not violate any copyright regulation under our supervision in partial fulfilment of

requirement for the award of Bachelor of Science (B.Sc.) in the Department of Accounting,

Faculty of Management Sciences, Adekunle Ajasin University, Akungba-Akoko, Ondo State,

Nigeria.

__________________ ______________________
Mr. ADEGBOYEGUN A.E Date
(Supervisor)

__________________ ______________________
Dr. Alade M.E Date
(Head of Department)

3
 DEDICATION
This research work is dedicated to Almighty God, for his guidance and support throughout my

days in Adekunle Ajasin University, Akungba Akoko, Ondo State. To my wonderful parents

Mrs. Olafusi and My Siblings for their moral and financial support through my days as an

undergraduate, may Almighty God bless you continually and your struggles over your children

shall not be in vain (Amen).

4
 ACKNOWLEDGEMENT
My sincere appreciation goes to Almighty God, the giver of life, the beginning and the end for
his care, love, protection, mercy and graces over my life throughout my sojourn in Adekunle
Ajasin University, Akunga-Akoko.

I will like to express my deep and sincere gratitude to my project supervisor Mr. A.E
ADEGBOYEGUN for his support and care and for his fatherly relationship and guidance
towards the completion of this research work; I am so grateful for everything. My special thanks
go to all the lecturers in the Department of Accounting: Dr. M.E. Alade M.E. (Head of
Department), Prof. Felix Olurankinse (FCA), Dr. Mrs. O.E. Igbekoyi (FCA), Dr. Mrs. Ologun,
Dr. E.O. Oladiture, Dr. W.H. Agbaje, Dr. A.T. Adegbayibi, Dr. S.A. Adeusi (ACA), Dr.
Ayobaye Salemcity, Mr. A.E. Adegboyegun (ACA), Mr. O.S. Olabisi (ACA), Mrs. O.M.
Odugbemi (FCA), Mr. S.R. Oloruntoba and all the adjunct lecturers for the knowledge imparted
to me.

My unreserved gratitude goes to my parents Mrs. Olafusi Florence and Mr. Babatunde Olafusi
for their love, encouragement and immense support through my education, may God continue to
bless them and may they reap the fruit of their labor on me in the land of the living. I always
knew you that you believe in me and wanted the best for me.

This acknowledgement is incomplete without the mention of my personal person (Mrs. Rufia
Shade Olafusi) and my brother (Deji Olafusi) you are the best and I love you all.

To my friends, thank you for being there for me all time, for offering advice and supporting me
through the entire process. Thanks to my friends, my co-project students and course mates, you
have all irreplaceable space in my life. All the 2022 graduating set of Accounting and
Accounting Education are all appreciated.

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 ABSTRACT
The study examined the effect of creative accounting on shareholders wealth of listed deposit
money banks on the Nigeria stock exchange. This study adopted ex-post facto research design.
Secondary data were sourced from the annual reports of the sampled manufacturing companies
and Nigeria Exchange Group (NGX) factbook.
This study adopted ex-post facto research design. Secondary data were sourced from the annual
reports of the sampled deposit money banks and Nigeria Exchange Group factbook. A
population of twenty-five (25) listed deposit money banks of which the study sampled ten (10)
listed deposit money banks for the period 2012-2021. The data collected was analyzed using
descriptive and inferential statistics and the hypothesis were be tested using regression analysis
to test the relationship between the variables. The study employed cross sectional panel multiple
regressions, fixed effect result, random effect, pool effect and Hausman test, to access the effect
and relationship among variables used. The pre-test result using descriptive statistics and
correlation matrix shows that all variables are normally distributed.
The result revealed that creative accounting which is measured by earnings management has a
coefficient of 0.046194. This implies that, earnings management has positive relationship with
stock price and significant as indicated by p-value of 0.0340, which is lesser than 5%. The
coefficient of tax avoidance is -03.8959. The result also shows that there was negative and non-
significant relationship tax avoidance and stock price with p-value 0.5319 statistically non-
significant. Off Balance Sheet Finance as indicated by the co-efficient of 3.857 and p-value of
0.0305, which was significant at 5%, signifies that off balance sheet finance has significant effect
on the stock price of Nigeria deposit money banks.
This study concludes that earnings management and off-balance sheet finance has a positive
relationship on the stock price of Nigeria deposit money banks. The study thus recommended
that management of Nigeria deposit money banks should ensure that proper internal control
mechanisms are put in place in order to check the problem of tax avoidance and other creative
accounting practices, which had been responsible for several collapses of companies in Nigeria
and beyond. These internal systems are expected to curb the vices of creative accounting
generally as this transform to poor shareholders wealth.
Key words: Shareholders wealth, Creative accounting, Earnings management, Tax
avoidance

6
 Table of Content

Contents
DECLARATION.............................................................................................................................2

CERTIFICATION...........................................................................................................................3

DEDICATION.................................................................................................................................4

ACKNOWLEDGEMENT...............................................................................................................5

ABSTRACT....................................................................................................................................6

CHAPTER ONE..............................................................................................................................7

INTRODUCTION...........................................................................................................................7

1.1 Background to the Study......................................................................................................7

1.2 Statement of Problem..............................................................................................................10

1.3 Research Questions..................................................................................................................11

1.4 Objective of the Study.............................................................................................................12

1.5 Research Hypotheses...............................................................................................................12

1.6 Significance of the Study....................................................................................................13

1.7 Scope of the Study..............................................................................................................13

1.8. Operational Definition of Terms............................................................................................14

CHAPTER TWO...........................................................................................................................15

LITERATURE REVIEW..............................................................................................................15

2.1. Conceptual Review.................................................................................................................15

2.1.1 Creative Accounting.............................................................................................................15

2.1.2 Earnings Management..........................................................................................................17

2.1.3 Tax Avoidance......................................................................................................................19

2.1.4 Off Balance Sheet Finance...................................................................................................20

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2.1.5 Shareholders Wealth.............................................................................................................22

2.1.6 Stock Price............................................................................................................................23

2.2 Theoretical Review..................................................................................................................25

2.2.1 The Information Asymmetry Theory....................................................................................25

2.2.2 Legitimacy Theory................................................................................................................26

2.3 Empirical Review of Literatures..............................................................................................27

2.3.1 Creative Accounting and Shareholders wealth...............................................................27

2.3.2 Earnings Management and Shareholders Wealth...........................................................31

2.3.3 Tax Avoidance and Shareholders Wealth.......................................................................33

2.3.4 Off Balance Sheet Finance and Shareholders Wealth....................................................36

2.4 Gap in Literature.................................................................................................................38

2.5 Conceptual Framework.......................................................................................................40

2.6 Summary of Empirical Review..........................................................................................41

CHAPTER THREE.......................................................................................................................48

METHODOLOGY........................................................................................................................48

3.0 Introduction..............................................................................................................................48

3.1. Research Design.....................................................................................................................48

3.2. Sources of Data...................................................................................................................48

3.3 Population of the Study...........................................................................................................48

3.4. Sample and Sampling Technique...........................................................................................49

3.5. Model Specification............................................................................................................49

3.6. Measurement of Variables.................................................................................................51

3.7. Method of Analysis.............................................................................................................51

CHAPTER FOUR.........................................................................................................................53

DATA ANALYSIS AND INTERPRETATION...........................................................................53

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4.1. Introduction.............................................................................................................................53

4.2 Descriptive Statistics...............................................................................................................53

Table 4.1 Descriptive Statistics.....................................................................................................55

4.3 Correlation Matrix...................................................................................................................56

Table 4.2 Correlation Matrix.........................................................................................................56

4.3.1 Normality Test......................................................................................................................57

4.4 Analysis of Regression Results and Discussion of Findings...................................................58

4.5 Testing of Hypothesis and Discussion of Findings............................................................61

4.5.1 Earnings management and Stock Price...........................................................................61

4.5.2 Tax Avoidance and Stock Price............................................................................................62

4.5.3 Off Balance Sheet Finance and Stock Price....................................................................63

CHAPTER FIVE...........................................................................................................................65

SUMMARY, CONCLUSION AND RECOMMENDATION......................................................65

5.1 Summary..................................................................................................................................65

5.2 Conclusion...............................................................................................................................65

5.3 Recommendations....................................................................................................................66

References......................................................................................................................................68

9
 List of Tables

Table 4.1 Descriptive Statistics

Table 4.2 Correlation Matrix

Table 4.3 Pool OLS Result

Table 4.4 Fixed Effect Result

Table 4.5 Random Effect Regression Result

Table 4.6 Summary of the Hausman test

10
 CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Financial reporting serves a wide range of users, including investors, employees, lenders,

suppliers, customers, government, and the general public, by providing information about an

entity's financial position, performance, and changes in financial position that is useful in making

economic decisions (Balaciu et al., 2009). Therefore, financial reports must provide meaningful

information to users in order for them to make economic decisions (Siyanbola et al., 2020). Only

until the basic qualitative qualities of financial statements have been met can the information

presented be useful. In general, financial accounts can be altered using accounting practices,

which can provide either a positive or negative image (Adetoso & Ajiga, 2017). The company's

leaders are frequently under pressure to profit from the stock market while also maintaining a

positive share price value (Bhasin & Shaikh, 2013). Accountants, as stewards of shareholders,

collaborate with directors to alter accounting data rather than present a genuine and fair picture

of financial statements.

In the context of this study, creative accounting entails the deliberate manipulation and

window dressing of earnings reported, either to satisfy the motive of preparers by presenting a

plausible outlook of the firm to outsiders, to ensure personal gains for managers, or to achieve

certain firm goals (Uwah & Akpan, 2019). It is done within the bounds of legality and in

accordance with accounting standards. Bhasin & Shaikh (2013) defined creative accounting as

the intentional influence exerted on financial reported figures to suit the impression of managers

to stakeholders by a view other than the actual performance or financial position of the company

through the application of accounting knowledge and discretion within the jurisdiction of laws

set up by accounting regulatory bodies. Therefore, the use of creativity in financial reporting may

11
be regarded as playing with the financial statements elements which may result in the

overestimation in the value of assets, high inventory levels, reduction in expenditures, changes in

depreciation methods, showing provisions as assets, etc. (Lau & Ooi, 2016).

Today ’s business environment and competitive landscape, as well as the recent economic

slump, has prompted most top management authorities to focus on how to make their company's

financial statements look better and attract investors (Kingdom et al., 2018) The corporation

manipulates figures in its financial statements by creative accounting techniques, either by

boosting or decreasing the numbers, depending on what the company needs to achieve at the

time. According to Obodoekwe & Agbo (2020), creative accounting is not unlawful in and of

itself, and it can sometimes benefit investors. Earnings management, for example, may ensure a

consistent dividend policy. However, this technique can be considered unethical and should be

avoided because it distorts reality (Henry, 2021). It should be clear that it is a thin line that

separates legal creative accounting from management fraud. Although companies apply

accounting standards, at the same time they use ‘loopholes’ to enhance the key indicators (Karim

et al., 2016). Creative accounting can have a positive impact on a company’s business in the

short term, but in the long run it may result in decreased stock prices, insolvency, and even

bankruptcy. Moreover, it remains difficult to put down general rules of ethical behavior, as one

culture may consider something as ethical while another might reject it completely.

Shareholders wealth is determined by the magnitude, timing and risk of the future free cash

flows of the company. Museum (2019) emphasized the innovative aspects of creating accounting

in maneuvering accounting numbers and argued that innovation is an essential part of creative

accounting practices involved in innovative accounting practices. With increasing hard economic

times, companies may be motivated to practice creative accounting for diverse reasons. Players

12
in the accounting profession may not fully understand the operations of creative accounting

because different companies practice creative accounting for different reasons. A need therefore

arises to identify creative accounting practices, how they are practiced, as well as looking at the

effect they have on shareholders’ wealth (Bhasin & Shaikh, 2013). As a result, there is little

doubt that the maximization of shareholder wealth is the driving force behind corporate finance.

As a result, it is necessary to identify creative accounting methods, as well as how they are

implemented and the impact they have on shareholder wealth. The research's goal is to determine

whether creative accounting techniques have an impact on the wealth of shareholders of chosen

Nigerian banks listed on the stock exchange (Adetoso & Ajiga, 2017)

However, there are a limited number of studies in Nigeria that investigate the effect of

creative accounting on shareholders wealth in Nigeria. This study would be limited to few

mechanisms of measuring creative accounting which is the independent variable which includes

earnings management, tax avoidance, off balance sheet finance, although there are other

mechanisms of measuring creative accounting practices (Ata Ozkaya, 2014). The stock price is

utilized as a proxy variable for shareholder wealth, which is the response variable. The present

paper explores the influence of creative accounting on the shareholders wealth of banks listed on

the Nigeria Stock Exchange to fill a current gap literature on creative accounting and

shareholders wealth in Nigeria.

1.2 Statement of Problem

There are many reports of price manipulation, profit overstatement, and accounts

falsification by some dubious stewards which rendered the financial reporting ineffective. The

business failures of the past decade, however, have been closely associated with corporate

governance failure which involves a number of parties, management board of directors, auditors

13
and some investors (Ezeani, 2010). Most business organizations have always been connected

with fraud and have always been affected by financial collapses. Recently, accounting scandals

like Enran, World Com, Parmalat, Tyco, etc. have cost not only billions of dollars to the

stakeholders but also have damaged the accounting profession as a result of financial

misrepresentation.

Existing works have been done to examine the effect between creative accounting and

shareholder wealth across the globe but, little (Bankole et al., 2018; Essien & Udoetise, 2019;

Ezuwore & Agbo, 2020) has been done in Nigerian despite the prevalent corporate scandals.

This affects generalization due to cultural, economic and technological disparity between

countries the research was conducted and the Nigerian setting. A study of this nature is

paramount especially in a country like Nigeria but meanwhile, very little study has focused on

the subject matter, ignoring the gap yet uncovered.

Also, a few studies that has been carried out in Nigeria focused on public companies

(Oyadonghan & Igbo, 2014; Bankole et al., 2018, Etim & Akpan, 2019). In turn, this study tends

to focus on the banking sector in Nigeria which looks to cover the gap as it relates to industry

because the banking industry has that space still unfilled. The study will as well make its finding

to the most recent year 2021 in which no study has researched the relationship creative

accounting and shareholders wealth up to date in Nigeria as this will be the first, therefore, the

study also covers the time gap, by closing the period uncovered in previous studies.

As much as there are many studies that have attempted to unravel the problem of creative

accounting a study by Joshi & Li (2016) who argued that most of the business enterprise have

been linked with fraudulent activities as well as largely affected by financial collapsed.

Regulators of accounting profession seem to be silent on the issue of creative accounting, yet it is

14
widely practiced among many companies in the country (Mauwa, 2016). Regulators; such as the

Central Bank of Nigeria, often focus on the items that appear in the balance sheets of the banks

(Kure, 2019). There are many instructions and a circular governing these items in such a form

that makes them consistent with the regulatory instructions, while less attention and focus are

paid to off-balance items by the regulators due to probabilistic nature of such items. This is

obvious in the absence of regulatory and organizational rules that govern them. In recent years,

there has been a debate on creative accounting which is widely used to describe accepted

accounting techniques which permit corporations to report financial results that may not

accurately portray the substance of their business activities (Sanusi, 2014). No research has been

carrying out on specific item of creative accounting such as earnings management, tax avoidance

and off-balance sheet finance in Nigeria. This leave a gap to be fill in Nigeria economy. It is

within this context that, this study tends to examine the effect of creative accounting on

shareholders wealth of listed banks on the Nigeria Exchange Group.

1.3 Research Questions

In the course of the study, the following research questions were developed:

i. What are the effects of earnings management on the shareholders wealth of Nigeria

deposit money banks?

ii. To what extent does tax avoidance affects the shareholders wealth of Nigeria deposit

money banks?

iii. What are the effects of off-balance sheet finance on the shareholders wealth of Nigeria

deposit money banks?

15
1.4 Objective of the Study
The broad objective of this study is to examine the effect of creative accounting on shareholders

wealth of listed banks in Nigeria.

The specific objectives of the study are;

i. To evaluate the effect of earnings management on the stock price of Nigeria deposit

money banks.

ii. To examine the effect of tax avoidance on the stock price of Nigeria deposit money

banks

iii. To determine the effect of off-balance sheet finance on the stock price of Nigeria

deposit money banks.

1.5 Research Hypotheses

In line with the objectives of this study, the following null hypotheses were formulated;

Hypothesis One

H0: Earnings management has no significant effect on the stock prie of Nigeria deposit money

banks.

Hypothesis Two

H0: There is no significant effect of tax avoidance on stock price of Nigeria deposit money banks

Hypothesis Three

H0: Off balance sheet finance has no significant effect on the stock price of Nigeria deposit

money banks.

16
1.6 Significance of the Study
The findings of this study will not only be useful tool for business boards of directors in ensuring

that enough information about their operations is correctly disclosed on financial statements, it

will however be also useful to policy makers, society at large as well as the body of knowledge

in accounting principles (Academia). Knowing the elements that contribute to creative

accounting methods within an organization will be valuable to stakeholders and investors. This

study will also educate policymakers and the general public on the impact of creative accounting

on the wealth of shareholders of select listed banks on the Nigerian stock exchange, which would

aid good policy formulation, particularly in the banking sector.

The findings of this research will also provide insight into some of the regulatory provisions put

in place by the Nigerian government to improve the quality of bank financial statements. The

public will also be educated, and trust in financial statements produced by banks and other

institutions in Nigeria would be restored. Finally, the study is expected to add to the existing

literature and act as a significant resource for future learning and research for academics,

students, and academia.

1.7 Scope of the Study

The research will concentrate on deposit money banks that are publicly traded on the exchange

group. It will cover ten years (2012-2021) and to maintain policy homogeneity, 2012 was chosen

as the base year because 2012 was the beginning of a new financial reporting era due to the

adoption of IFRS which as well affected the reporting of creating accounting, and to ensure

uniformity of policies. The year 2021 was chosen because it is the most recent year for which

data is available. The study will make use of secondary data and the data will be acquired from

the banks' yearly financial statements, and analysis will be performed utilizing the information

17
obtained. In terms of the subject matter, the study covers cogent areas on creative accounting on

shareholders wealth taking into cognizance the various concepts and methods of creative

accounting. The variables of interest in this study include creative accounting (earnings

management, tax avoidance and off-balance sheet finance) as the independent variable while

stock price is the dependent variable.

1.8. Operational Definition of Terms

i. Off balance sheet finance: These are items which are ways of funding liabilities that are not

explicitly acknowledged in the budget in order to keep the debt to equity ratio low and keep a

high bank certification classification.

ii. Earnings management: Earnings management is an outright accounting fraud practice

designed by management to record bogus, inflated, revenue, and earnings smoothing to meet

earnings projections, financial market, and analyst expectations

iii. Tax Avoidance: Tax avoidance is the process of reducing the tax payable, given the

deductions applicable to taxpayers. It helps reduce the tax burden of individuals and businesses,

including major corporates.

iv. Shareholders wealth: Shareholder wealth is the collective wealth conferred on shareholders

through their investment in a company

V. Creative Accounting: This is a method, which is used to make or interpret accounting

polices falsely with the objectives of misusing the accounting techniques and standards, which

are being set by the accounting bodies.

18
 CHAPTER TWO
LITERATURE REVIEW
In this part of the dissertation, the review of relevant and related literatures to the topic of

interest will be done. Therefore, in this part of the dissertation, there will be the

conceptualisations of some key works such as the stock price, the creating accounting concept,

the earning management concept, tax avoidance, off balance sheet finance. Also, the empirical

review will be done in addition to the theoretical framework of the study.

2.1. Conceptual Review

This part of the study make conceptualisations and examining what literatures have said and

discussed about the concept of creative accounting, earnings management, stock prices, tax

avoidance, shareholder’s wealth and off-balance sheet finance.

2.1.1 Creative Accounting

Depending on the management's preference, creative accounting procedures entail making

the financial statements appear better and stronger financially on the one hand, or possibly

poorer financially on the other (Gupta & Kumar, 2020). According to Branka Remenaric and Ivo

Mijoc (2018), the several financial crises that seriously threatened the accounting profession

were caused by creative accounting. They added that the credibility of financial statements is

impacted when inventive accounting techniques are used with blatantly dishonest motives, and

as a result, the decisions made by those who use financial accounts may not be founded on the

truth and fairness of transactions and occurrences. This is because the accounting principles and

standards are manipulated which affects the reliability, objectivity and comparability of such

statements. Hence decisions based on such financials may be misleading. Ababneh and Aga

(2019) opined that creative accounting practices are widely practiced among companies. They

further stated that the major cause of creative accounting among entities were due to tax

19
avoidance and tax evasion reasons. Apart from tax evasion and avoidance reasons, management

may have other reasons and incentives why they might want to present their accounts in the

manner that suits them. For instance, the directors may want to sell the company in the near

future. This they do to make it look attractive to attract interest from potential buyers and ensure

higher valuation, where the company is experiencing a difficult and bad times such as decreasing

profits, possible takeover or decreasing shareholders and investors’ confidence, also where the

manager’s remuneration is tight to the profit and finally, where the company is at the verge of

defaulting in its loan covenants.

Creative accounting practices in a study by Comandaru et al. (2021) take several methods.

Firstly, it may be done in the form of off statement of financial position financing, where

transactions are deliberately constructed to allow the non-recognition of assets and particularly

liabilities for loans. Secondly, it may be in the form of aggressive earnings management where

revenues are being recognised before they are earned by the company. Thirdly, creative

accounting could be carried out by way of unjustifiably altering accounting policies or

accounting estimates for example, increasing the economic lives of non-currents assets with the

aim of reducing their depreciation expenses and increasing earnings and vice versa. Finally,

management could embark on the distortion of profit figure by including fictitious assets and

liabilities in the accounts and spreading these amounts over time. This is called profit smoothing

(Cugova & Cug, 2020).

Creative accounting and earnings management according to Egwurube (2021) are terms

referring to accounting practices that should follow the letter of the rules of standard accounting

practices, but certainly deviate from the spirit of these rules. They are characterised by excessive

20
complication and the use of novel ways of characterising income, assets or liabilities and the

intent is to influence readers towards the interpretations desired by the authors. The terms

“innovative” or “aggressive” are sometimes used (Kenfeljaet al., 2019) . Creative accounting

also known as aggressive accounting involves matters of accounting appraisal, conflicts items

and events. Hence, this flexibility gives room for manipulation, deceit and misrepresentation.

Hence, the accountants use their knowledge of accounting rules to manipulate the figures

reported in the accounts of a business (Saleh, et al., 2021).

2.1.2 Earnings Management

According to Santana et al. (2020), earnings management is an outright accounting fraud

practice designed by management to record bogus, inflated, revenue, and earnings smoothing to

meet earnings projections, financial market, and analyst expectations. Earnings management has

a negative impact on earnings quality and dilutes the transparency of financial reporting

(Baskaran et al., 2020). Therefore, to produce transparent, timely and reliable financial

statements, accounting process should follow objective and consistent set of rules (Baskaran et

al., 2020). Even when a strong International Financial Reporting Standards is in place to guide

financial accounting activities; sometimes it becomes almost impossible to prevent the

manipulative behavior of the preparers of financial statement, who want to effect the decisions of

the financial statement users in favor of their companies (Gandhi, 2021). This is as a result of the

flexibility, limitations, and inconsistencies that are embedded in the Generally Accepted

Accounting Principles (GAAP) which have given the managers the latitude of making

accounting decisions that will drive revenue results (Gandhi, 2021).

Earnings management often involves the artificial increase (or decrease) in revenue, profit,

or earnings per share figure through aggressive tactics. Aggressive earnings management is a

form of fraud and differs from reporting error (Li, 2019). The management that wishes to show
21
earnings at a certain level or following a certain pattern seeks loopholes in financial reporting

standards that allow them to adjust the numbers as far as it is practicable to achieve their desired

aim or to satisfy projections by financial analysis (Beyer et al., 2019). These adjustments result

into fraudulent financial reporting since they fall outside the confines of acceptable accounting

practice.

Lo (2008) asserted that managers are often criticized by investors when the organizations

do not meet the pre-determined earnings expectation. The stock price of the firms who do not

meet the earnings expectation tend to decline, therefore, to steer stock prices higher some

management engage in a variety of earnings manipulation (Lo, 2008). Almarayeh, Aibar-

Guzmán and Abdullatif (2020) asserted that earnings management is a deliberate action taken

within GAAP to bring about desired earnings outcomes. They argue that GAAP is rule based,

but the wide latitude flexibility that exist in its application, and many subjective judgments and

assumptions must be made in determining accrual-based earnings (Almarayeh, Aibar-Guzmán &

Abdullatif, 2020). Corporate profits are the measurement that is central to capital allocation

within the economy and to a variety of economic policy decisions (Huguet & Gandía, 2016). He

argues that investors infer a company’s prospects and value from reported earnings, adjusting

portfolio decisions in response to changed estimates and aggregate corporate profits are often

employed to forecast overall stock market (Reyna, 2018). Under performing firms may be

tempted to use questionable accounting techniques to boost earnings to meet market

expectations, if undetected might mislead and confuse potential investors, creditors, and other

users of financial statements. Earnings manipulation therefore occurs when management use

judgment in financial reporting and structuring transactions to alter financial report to make

earnings appear higher than they actually are. Gandía and Huguet (2021) stated that one of the

22
reasons why firms manage or manipulate earnings is to meet market expectations or forecasts by

analysts. They argue that the companies that meet or exceed earnings expectations enjoy the

benefit of higher stock prices and earnings per share relative to companies that do not meet

earnings expectations (Xue & Hong, 2016).

Earnings management can also be viewed as an unfavorable activity that has the tendency

to affect the reputation and credibility and the stock performance of companies (Srivastava,

2019). Moreover, this implies that companies are usually attracted to deliberately alter their

earnings, for some reasons such as attracting investors, satisfying shareholders and creditors. Lo,

Ramos and Rogo (2017) in a study posits that earnings management in whatever form refers to

the misrepresentation of true fact and figures of accounts that erode shareholder's confidence on

the reported companies' financials. This practice distorts the reported earnings which affects their

real performance and consequently their ability to pay dividends (Lo, Ramos & Rogo, 2017). A

major motivation for companies to engage in earnings management practice may be to increase

their earnings and stock price and thus attract potential investors (El Diri et al., 2020). However,

this practice usually results into an increase in the accrual components of earnings.

Consequently, there may be an increase in reported earnings and stock market price without a

corresponding increase in dividend payment of the companies (Khanh & Thu, 2019).

2.1.3 Tax Avoidance

Taxation from perception of government and companies has always been contemporary

issues discussed globally. Tax avoidance is recognized as a legal method to be practiced for the

benefit of the company (Fisher, 2014). The practice will provide opportunity for the company to

avoid paying tax by certain degree for the current financial year. The concept is allowable as

compared to tax evasion method in which it is conducted to prevent from illegal tax paying.

23
Motivation to pay low tax is one of the reasons companies in Kenya conduct creative accounting

(Amat & Gowthorpe, 2014). Companies arrange, manage and plan the financial to ensure that

only least possible amount of tax need to be paid but still abide by the law. Various legal

mechanisms could be practiced with the objective to avoid paying tax by certain amount and

protect companies’ liability. Companies looking for tax consultants to provide professional

guidance, increase allowable tax expenses and subscribe for life assurance policies are some

initiatives taken to avoid paying tax (Adebisi & Gbegi, 2013). These initiatives are usually

regarded as one mechanism that can increase financial performance of the firm and at the same

time reduce the amount of tax payable for the year (Desai & Dharmapala, 2019). On the other

hand, it is argued that there are two possible motives that can allow the company to pay less

amount of tax through appropriate level of employment contracts. Companies need to confirm

with level of provisions or compensations that can eliminate certain tax liabilities. Therefore, the

company initiative to reduce tax payable must be aligned with the internal control and the

standard of procedures to ensure that the mechanism is conducted in a cohesive way. It is found

that some companies use creative accounting mechanism to reduce the amount of tax payable

(Kamau et al., 2012). Companies may avoid paying tax by understating their income and

increase expenses.

2.1.4 Off Balance Sheet Finance

These are items which are ways of funding liabilities that are not explicitly acknowledged

in the budget in order to keep the debt to equity ratio low and keep a high bank certification

classification (Ablaza et al., 2021; Huang, 2018). Although they are characterised as contractual

obligations, they have a direct impact on the overall value of the banks even though they do not

directly entail financial obligations for the banks (Ablaza et al., 2021). Due to financial

24
liberalisation and technological advancement, off-balance items have become more significant

for banks globally in recent years (Zhang & Liu, 2020).

This increased the competitive pressures the banks faced, which in turn caused the interest

margins they charged for conventional banking products, like all types of loans, to decline.

Incidental traditional commitments arising from issuance of letters of guarantee for loans, to

work performance or to documentary credits and other things in addition to the obligations

arising from dealing in derivatives contracts are off balance sheet finance (Vu, 2003).

Furthermore, Richard (2001) defined off-balance items as the financial activities that provide

financing sources to the enterprise without stating the financial obligations in the financial

statements. However Goodacre (2003) defined them as potential assets and liabilities which

effect in future budgeting, as well as they effect the liquidity, profitability and security of the

bank. It is a promise or commitment to grant a credit, which is in turn forms an emergency

commitment does not appear in the budget of the Bank, and for this reason it is referred to as off-

balance items. Basel Committee on banking supervision also defined off-balance items as

financial contracts in an asset value or a particular indicator, where it is allowed to transfer risks

to another party (Lander & Auger, 2008). From all the aforementioned interpretations, it can be

shown that there is broad consensus among scholars about the main traits of off-balance items,

such as their disappearance in the financial statements but possible existence in the explanations

that go along with those statements. These things involve revenues while also posing a lot of

risks. Kraft (2015) emphasised that these things are one of the inventive accounting techniques

that can be employed to deceive financial statement users.

25
2.1.5 Shareholders Wealth

According to the purpose of maximising shareholder wealth, management should work to

maximise the current value of anticipated future returns to the company's owners, or

shareholders. Periodic dividend payments or the revenues from the sale of the common stock are

two examples of these returns (Ewelt-Knauer et al., 2015). The value of a future payment or

stream of payments today, when assessed using the appropriate discount rate, is known as the

present value (Chuang, 2017). The discount rate considers the potential returns from different

investment options over a particular (future) time horizon (Rao & Bharadwaj, 2008). Investors

place less value on benefits that take longer to materialise, such as cash dividends or increases in

the price of a company's stock (Rao & Bharadwaj, 2008). Furthermore, Brandon-Jones et al.

(2017) reported that the greater the risk associated with receiving a future benefit, the lower the

value investors place on that benefit. Stock prices, the measure of shareholder wealth, reflect the

magnitude, timing, and risk associated with future benefits expected to be received by

stockholders (Brandon-Jones et al., 2017). Shareholder wealth is measured by the market value

of the shareholders’ common stock holdings. Market value is defined as the price at which the

stock trades in the market place, such as on the Nigeria Stock Exchange (Thirumagal &

Vasantha, 2018). Thus, total shareholder wealth equals the number of shares outstanding times

the market price per share. The objective of shareholder wealth maximization has a number of

distinct advantages (Alora & Barua, 2021).

First, this objective explicitly considers the timing and the risk of the benefits expected to be

received from stock ownership. Similarly, managers must consider the elements of timing and

risk as they make important financial decisions, such as capital expenditures (Denis, 2016). In

this way, managers can make decisions that will contribute to increasing shareholder wealth

26
(Denis, 2016). It is conceptually possible to determine whether a particular financial decision is

consistent with this objective. If a decision made by a firm has the effect of increasing the market

price of the firm’s stock, it is a good decision (Lin et al., 2020). If it appears that an action will

not achieve this result, the action should not be taken (at least not voluntarily). Farah and Li

(2022) in a study reported that shareholder wealth maximization is an impersonal objective.

Stockholders who object to a firm’s policies are free to sell their shares under more favourable

terms (that is, at a higher price) than are available under any other strategy and invest their funds

elsewhere. Therefore, if an investor has a consumption pattern or risk preference that is not

accommodated by the investment, financing, and dividend decisions of that firm, the investor

will be able to sell his or her shares in that firm at the best price, and purchase shares in

companies that more closely meet the investor’s needs (Farrukh et al., 2017). For these reasons,

the shareholder wealth maximization objective is the primary goal in financial management

(Farrukh et al., 2017). However, concerns for the social responsibilities of business, the existence

of other objectives pursued by some managers, and problems that arise from agency relationships

may cause some departures from pure wealth maximizing behaviour by owners and managers

(Teschner & Paul, 2021). Nevertheless, the shareholder wealth maximization goal provides the

standard against which actual decisions can be judged and, as such, is the objective assumed in

financial management analysis (Teschner & Paul, 2021).

2.1.6 Stock Price

According to Badruzaman (2020), stock value is the amount an individual is prepared to

pay right now for shares of a company. The stock market affects a nation's economy significantly

since it determines a firm's valuation and its ability to borrow money in addition to serving as a

direct source of funding (Nguyen et al., 2020). It offers a pathway for capital formation and

27
investment, and it can serve as a gauge or forecaster of the state of the economy as a whole. It

serves as a liaison between savers and businesses looking for additional capital for business

expansion, which promotes industrialization and the creation of job opportunities that raise

societal standards of living (Luo & Zhang, 2020). It provides a platform to individuals,

governments, firms and organizations to trade and invest in savings through the purchase of

shares (Andreou et al., 2021).

A stock market is very crucial to sustainable economic growth as it can assure the flow of

resources to the most productive investment opportunities. So, as an important institution of a

country, stock market is of a great concern to investors, stakeholders and the government. The

market price of a share is a key factor that influences investment decision of stock market

investors. The share price is one of the most important indicators available to the investors for

their decision to invest in or not a particular share. . The stock price in the market is not static

rather it changes every day. The most obvious factors that influence are demand and supply

factors. i.e, when demand is higher than supply, stock prices go up and when supply is higher

than demand, stock prices decreases (Ding, 2021). The price of any commodity is affected by

both micro-economic and macro-economic factors. In the securities market, whether the primary

or the secondary, stock price can be significantly influenced by a number of micro

environmental factors including dividend per share, book value (asset value) of the firm,

earnings per share, price earnings ratio and dividend cover etc. (Ghazo et al., 2021). Eldomiaty

et al. (2020) reported that macro-economic factors include politics, general economic conditions

- i.e. how the economy is performing, government regulations, etc. The company's performance,

as well as its performance relative to the industry and other players in the industry, may also

have an impact on other variables like demand and supply conditions. Once more, some eminent

28
authors contend that changes in fundamental variables important for share valuation, such

as Dividend per share, Earnings per share, dividend pay-out ratio and firm size, are related to

changes in share prices (Badruzaman, 2020; Sholichah et al., 2021; Zaman et al., 2021).

2.2 Theoretical Review

This section or subsection of the research will be dealing with the theoretical review of the

study. In this part, already established theories in the topic of interest will be conceptualized as

well as applied to the on-going study. Hence, the theoretical framework for this study will be the

information asymmetry theory as well as the legitimacy theory.

2.2.1 The Information Asymmetry Theory

According to Chod and Lyandres (2018) the idea holds that there is a tendency for

information asymmetry, with managers having better knowledge of the organization's financial

situation than shareholders and other users. There is therefore, a conflict between the advantaged

managers and the stakeholders due to the information asymmetry (Chod and Lyandres, 2018). It

is presumed that accounting disclosures contain information that is very important and relevant

to the stakeholders in terms of signalling (Yazdanfar, 2012). As a result, the accountant is always

required to present a genuine and fair assessment of the transactions in the financial statements

(Yazdanfar, 2012). However, Dawson, Watson and Boudreau (2010) asserted that the managers

as a result of the positions they occupy and privileged information tend to take advantage or

streamline the activities of the organization into a course that is suitable to them. They went

further to state that the efficiency of the secondary trading of debt securities would be increased

by decreasing information asymmetry regarding a borrower through conservative reporting

(Dawson, Watson and Boudreau, 2010). Omar, Sell and Rover (2017) and Chod and Lyandres

29
(2021) opined that conservatism and accrual accounting can be tolls of creative accounting as

they have direct effect on the financial statements since it involves a doubtful situation in the

accounting field.

2.2.2 Legitimacy Theory

According to the legitimacy hypothesis, businesses work hard to carry out operations that

adhere to the laws of the environments in which they work. It suggests a situation in which an

entity acts in accordance with societal norms (Sari & Prihandini, 2019; Silva, 2021). Legal

businesses must abide by social norms. Conflicts arise when actions don't follow expectations for

the setting in which they take place (Vitolla & Rubino, 2017). According to the notion, a social

contract connects a corporation with a domain or society's functions (Vitolla & Rubino, 2017)..

These are the social demands placed on business operations. The company should adhere to

social norms because disobeying them could result in criticism and punishment (Vitolla &

Rubino, 2017). According to Guthrie and Parker (1989), over a certain time frame, rules are

dynamic and fluid. Therefore, in order for a firm to maintain its legitimacy, it must both adapt to

these changes and meet the new demands of the society in which it operates. Consequently,

firms’ weather additional social responsibility costs such as employees’ health, safety, and

environment hazards (Dube & Maroun, 2017). Additionally, society’s expectations regulate firm

activities through certain requirement at predetermined periods (Dube & Maroun, 2017). In

summary, legitimacy theory examines how firms manage relationships with diverse stakeholders

essential to its existence as going concern. The ways in which firm can legitimatize its activities

are described as follows; By adjusting objectives, methods, and output, as well as adjusting

activities to reflect modern conceptions of legitimacy; Information is used by the company to re-

30
evaluate social legitimacy and guarantee compliance with modern procedures, its values, and

production.

Patten (2020) asserted that legitimacy is achieved through provision of adequate information in

accounts and other public disclosure forum such as firm’s website. Hence, accounting provide

framework to legitimize the efforts and accomplishments of the entity (Pittroff, 2014). Reporting

is key for information dissemination to interested parties on social responsibility activities or

actions embarked upon by entity (Alam, 2021). It can support or counter negative news that is

already publicly available (Janang et al., 2020). Managers can use Voluntary disclosures reports

to influence stakeholders and show that firms operations are legitimate. This is accomplished

using Voluntary disclosures of cost of social responsibility actions and environmental activities

(Islam et al., 2021).

The Information Asymmetry Theory is the foundation of this investigation. This is due to

the fact that business analysts and economists base their decisions on the data included in an

entity’s financial statements. The shareholders can determine the status of their investments and,

more significantly, whether the company is successful thanks to the data in the financial

statements. However, management occasionally takes use of the flexibility in the accounting

standards to change the reported earnings in order to accomplish their goal. This is due to

information asymmetry, as the managers have more knowledge about the organization they

oversee than the shareholders, the company's owners.

2.3 Empirical Review of Literatures

2.3.1 Creative Accounting and Shareholders wealth
Jones (2011) revealed that the creative accounting of firms listed on the Istanbul Stock

Exchange, for the five-year period 2006-2010. He used logic analysis and found that very

31
large sized firms were less likely to have smoothing behaviour than small-sized firms, and firms

in service industry were less likely to have smoothing behaviour than firms in financial industry.

Additionally, Sajid, Nazir, Iqbal and Bilal (2012), examined the influence of dividend policy on

shareholder wealth by taking a sample of 75 companies from 2005-2010. By performing a

multiple regression analysis, they found that the difference between the book value of equity and

the average market is highly significant among companies paying dividend rather than non-

paying companies. They further stated that the companies paying dividend regularly led to the

shareholder wealth maximization.

Idris et al. (2012), using survey method, they investigated the practice of creative

accounting, its nature, techniques, and prevention. The findings of the study showed that the

current GAAP in Nigeria created a gap that can permit the practice of creative accounting, and

also revealed that the International Financial Reporting Standard will go a long way to reduce the

practice, since it covers more areas that the former practice. They concluded that one of the best

ways to prevent the practice of creative accounting is to enforce both preventive as well as strong

enough punitive measures on those that engage in the practice. Also, Efiok and Eton (2012) tried

to explore the environment of creative accounting in the Nigeria, focusing on the motivations

and constraints on such practices, by examining the accounting practices of two companies

which issued creative financing instruments. They found out that creative accounting is

influenced by two key motivators: stakeholder contracts and performance indicators. Moreover,

analysis showed that management took advantage of gaps in accounting standards to present a

biased picture of financial performance

Sanusi (2014) investigated why, how, to what extent, and in what direction creative

accounting was practiced in banks. The results of the study indicated that creative accounting

32
was practiced in banks frequently, and to a considerable extent mainly with the blessing of the

law. The findings also suggested that large firms augmented profits for external financing, while

small firms understated profits to reduce income taxes.

Sanusi and Izedonmi (2014) focused on the scope, incentive factors, limits, practice

methods and results of creative accounting. In order to determine the creative accounting

practices of firms they used accruals method and used modified Jones model by adding country

specific variables. One of the important findings of his study was that the motivation of creative

accounting practices by using accruals diminished as the size of the firm increased. They also

revealed that as the degree of financial leverage increased the motivation of using creative

accounting practices also increased.

Munene (2015) investigated the effect of creative accounting on shareholders’ wealth in

listed companies in Kenya This study used a diverse research design; cross-sectional and

explanatory research designs were adopted for primary data and time-series for collecting

secondary data. This study therefore adopted mixed research design to ensure that the data

collected and analyzed addresses the objectives of the study. The study comprised 64 companies

listed on the NSE. The target population was comprised of all listed companies in Kenya. The

researcher found that the independent variables explain 64.3% of the variance in the shareholders

wealth. It’s very clear that these independent variables influence to a large extent the growth of

shareholders wealth

Lau and Ooi (2016) in a study conducted a study on fraudulent financial reporting, focusing

on the creative accounting methods used and the motives for such actions. The research results

showed that the most commonly used method of creative accounting was the overestimation of

33
revenues through recognition of fictitious revenues from product sales to bogus customers. The

main motive for this is increasing the company’s capital, not settling debts and maintaining the

level of capital. One of the key conclusions of the research is that auditors should review the

effectiveness of their analytical and material procedures since there is a significant number of

cases of creative or fraudulent accounting that remain undetected by the audit process. Also, the

bodies that set accounting rules should reconsider whether managers have too much discretion in

the application of accounting standards. In other words, the question arises whether they use this

discretion to provide useful information to the decision makers or to obtain personal gain. It

turned out that in most accounting scandals, unethical decisions of managers have led to

significant adverse consequences for decision-makers and society as a whole. Therefore,

managers should re-examine their own responsibilities and role in financial reporting.

Gathiga (2019) focused on the effects of creative accounting on shareholders wealth. The

study use both primary and secondary data, descriptive statistics used to analyze data and also

tables and figures which will be used for data representation for better interpretation and

understanding. The target population is 65 public listed companies in the Nairobi stock exchange

market. The research found out that many organizations lacked this predictability meaning that

the dividends that the shareholders would receive are correct and could correspond to the

profitability of the organization.

Essien (2019) examined the effect of Creative Accounting on Shareholders’ Wealth in

Money Deposit Banks Listed Companies in Nigeria. The quantitative study adopted a survey

research design with a target population of 134 staff from ten (10) selected listed companies.

Both primary and secondary data were used in this study. For primary data, the data collection

instrument was questionnaires while the secondary data was derived from financial reports and

34
related literature. The study findings revealed that income smoothing, tax avoidance and changes

in accounting policies have effect on the shareholders wealth in the listed companies in Nigeria.

Ebenezer (2022) examines the effect of creative accounting practices on the shareholders

wealth. 90 firm-year observations of ten (10) consumer goods companies listed on the Nigerian

Stock Exchange (NSE). Ex post facto research design was adopted using dataset for the period

2011–2019 which were collated from the annual reports and financial statements of the listed

consumer goods companies. Four hypotheses were proposed and tested using pooled panel data

regression. Findings revealed that frequent changes in inventory valuation method and assets

valuation methods respectively have significant effect on shareholders wealth, while frequent

changes in depreciation methods and liabilities valuation methods do not significantly affect

shareholders’ wealth.

2.3.2 Earnings Management and Shareholders Wealth

Gunny (2010) has examined the future operating performance of firms that use earnings

management to just meet earnings benchmarks. After controlling for size, performance, growth

opportunities, and industry, she found that earnings management practices were positively

associated with firms just meeting earnings benchmarks. In addition, the findings of the study

revealed that firms engaging in earnings management to just meet earnings benchmarks had

relatively better subsequent performance than firms that did not engage in earnings management

and missed or just met the benchmarks. As a result, she concluded that engaging in earnings

management was not opportunistic, but consistent with the firm attaining current-period benefits.

In Jordan, Alzoubi (2016) analyses the connection between company management and

earnings management in Jordan. He arrived to the conclusion that ownership structure has a

35
significant influence on earnings management. Thus, managerial ownership, institutional

ownership, shareholders, as well as family and foreign ownership affect the quality of financial

reporting, because they greatly reduce the ability to manage earnings.

Adeyeye (2018) examined the impact of creative accounting techniques on firm financial

statement. Expost facto research design was adopted. Data were collected from Nigeria Security

and Exchange Commission on listed deposit money banks in Nigeria from 2008-2018.

Descriptive analysis and ordinary least square were adopted for analysis. Findings from the

analysis revealed earnings management and tax avoidance are positively and insignificantly

related to return on asset; Loans and advances is positively and insignificantly related to its

returns on assets while Total deposit liabilities is positively and insignificantly related to return

on assets

Abasiama, et al., (2019) examine the effect of earnings management on shareholder’s

wealth maximization of banks listed on the Nigeria Stock Exchange. The data used in this study

was obtained from the annual reports of 10 quoted financial banks on the Nigerian Stock

Exchange which was sampled using the purposive sampling technique from the population of 15

banks. The study covered the period of eight years (2010- 2017). A model was specified and

descriptive statistics, correlation analysis and regression analysis were carried. The study found

out that earnings management variables; sales growth index has a positive insignificant

relationship with market value added, growth index has a positive insignificant relationship with

market value added.

Adebisi (2019) examined on the effects of creative accounting on shareholders wealth.

The study use both primary and secondary data, descriptive statistics used to analyze data and

36
also tables and figures which will be used for data representation for better interpretation and

understanding. The target population is 65 public listed companies in the Nairobi stock exchange

market. The research found out that many organizations lacked this predictability meaning that

the dividends that the shareholders would receive are correct and could correspond to the

profitability of the organization.

Imo (2020) examined the relationship between creative accounting practices and financial

performance of food and beverage companies in Nigeria. The study adopted survey research

design. The population of the study comprised twenty food and beverage companies in Nigeria

that are listed on the Nigerian Stock Exchange as at December 2020. Simple random sampling

was used to select the respondents. Structured questionnaire was the data collection instrument

used. The results of the study showed that: aggressive earnings management has a positive and

significant relationship with return on asset, aggressive earnings management has a positive and

significant relationship with return on equity, and income smoothing has a positive and

significant relationship with return on asset

2.3.3 Tax Avoidance and Shareholders Wealth

Mosota (2014) investigates the effect of tax avoidance on the financial performance of

firms listed in the Nairobi Stock Exchange (NSE). Using a descriptive research design, data on

size, institutional shareholding, government shareholding, age and intangible asset were

collected for the sixty one (61) listed firms in the Nairobi Stock Exchange (NSE). His result

reveals a significant positive impact of tax avoidance on the financial performance of the

companies. Size, age and intangible assets were found to have a positive effect on financial

performance, while leverage had a negative impact on the financial performance of sampled

37
firms. He recommends that firms should be aggressive in tax avoidance in order to improve

profitability

Sanusi and Izedonmi (2014) investigated why, how, to what extent, and in what direction

creative accounting was practiced in banks. The results of the study indicated that creative

accounting was practiced in banks frequently, and to a considerable extent mainly with the

blessing of the law. The findings also suggested that large firms augmented profits for external

financing, while small firms understated profits to reduce income taxes.

Robert (2018) examined the impact of creative accounting techniques on firm financial

statement. Expost facto research design was adopted. Data were collected from Nigeria Security

and Exchange Commission on listed deposit money banks in Nigeria from 2008-2018.

Descriptive analysis and ordinary least square were adopted for analysis. Findings from the

analysis revealed earnings management and tax avoidance are positively and insignificantly

related to return on asset; Loans and advances is positively and insignificantly related to its

returns on assets while Total deposit liabilities is positively and insignificantly related to return

on assets

Essien (2019) examined the effect of Creative Accounting on Shareholders’ Wealth in

Money Deposit Banks Listed Companies in Nigeria. The quantitative study adopted a survey

research design with a target population of 134 staff from ten (10) selected listed companies.

Both primary and secondary data were used in this study. For primary data, the data collection

instrument was questionnaires while the secondary data was derived from financial reports and

related literature. The study findings revealed that income smoothing, tax avoidance and changes

in accounting policies have effect on the shareholders wealth in the listed companies in Nigeria.

38
 Ukolabi (2020) examined the relationship between creative accounting practices and

financial performance of food and beverage companies in Nigeria. The study adopted survey

research design. The population of the study comprised twenty food and beverage companies in

Nigeria that are listed on the Nigerian Stock Exchange as at December 2020. Simple random

sampling was used to select the respondents. Structured questionnaire was the data collection

instrument used. The results of the study showed that: aggressive Tax avoidance has a positive

and significant relationship with return on asset, aggressive earnings management has a positive

and significant relationship with return on equity, and income smoothing has a positive and

significant relationship with return on asset

Mazurina et al., (2020) examine the relationship of creative accounting practices (proxied

by off-balance sheet finance and tax avoidance) and the impact of share price of Malaysian

public listed companies. Off-balance sheet finance and tax avoidance are some of the important

elements being discussed together with creative accounting practices and share price. Secondary

data was collected from data stream and from the information disclosed in the website of the

sampled public listed companies. The result indicates that off-balance sheet finance does

influence the financial performance of Malaysian public listed companies. The result of this

study could benefit the policy maker in order to responsively react on any issues and provides

specific guideline for the companies in applying certain judgment by referring to the accounting

standard.

Oluwamayowa et al. (2022) examines the effect of creative accounting practices on the

shareholders wealth. 90 firm-year observations of ten (10) consumer goods companies listed on

the Nigerian Stock Exchange (NSE). Ex post facto research design was adopted using dataset for

the period 2011–2019 which were collated from the annual reports and financial statements of

39
the listed consumer goods companies. Four hypotheses were proposed and tested using pooled

panel data regression. Findings revealed that frequent changes in inventory valuation method and

assets valuation methods respectively have significant effect on shareholders wealth, while

frequent changes in depreciation methods and liabilities valuation methods do not significantly

affect shareholders’ wealth.

Rakan (2022) studied the impact of creative accounting on financial statements in

Palestine. This study adopted a descriptive design of the ex-post facto type, with a sample of 100

auditors’ and academics’ perspectives. Questionnaires were sent to a random sample of

accounting instructors and auditors in Palestine. The result showed that accountants and

academics evaluated the impact of advanced accounting approaches on the reliability of financial

reporting to improve its credibility.

2.3.4 Off Balance Sheet Finance and Shareholders Wealth

Calmes and Theoret (2009) aimed to test the impact of off-balance activities on the budget

between the returns and risks of banks, through a sample of eight banks in Canada during the

period of 1988-2007. The outputs of the study showed that balance between the returns of the

bank shares and their risks showed a structural change in 1997. It also found that during the

period (1997-2007) the non-interest income resulting from the off-balance activities has no any

negative impact on the returns of the bank shares, while during the period (1988-1996) the

volatility in stock returns had any significant impact on the returns of the banks, risk premium, or

the pricing of risks associated with off-balance activities risks.

Mumuni (2015) investigated the effect of creative accounting on shareholders’ wealth in

listed companies in Kenya This study used a diverse research design; cross-sectional and

explanatory research designs were adopted for primary data and time-series for collecting

40
secondary data. This study therefore adopted mixed research design to ensure that the data

collected and analyzed addresses the objectives of the study. The study comprised 64 companies

listed on the NSE. The target population was comprised of all listed companies in Kenya. The

researcher found that the independent variables explain 64.3% of the variance in the shareholders

wealth. It’s very clear that these independent variables influence to a large extent the growth of

shareholders wealth

Godsday and Emmanuel (2016) examined international financial reporting standards

(IFRSs) as a way of taming creative accounting as well as factors that trigger unethical

accounting practices in Nigeria. The paper utilized structured questionnaires administered to 120

professionals (auditors, investors, stockbrokers). The Pearson Product Moment Correlation

statistical tool was used in analyzing the field data. The study found that IFRSs can be used to

tame creative accounting.

Bankole, et al., (2018) study was designed to establish the effect of creative accounting on

shareholders’ wealth. The study reviewed the theories and techniques of creative accounting as

well as the determinants of shareholders wealth. Empirical studies on creative accounting were

reviewed. It found that frequent manipulation of ageing schedule for the purpose of determining

bad and doubtful debts provision had no significant effects on shareholders wealth.

Mazurina et al., (2020) examine the relationship of creative accounting practices (proxied

by off-balance sheet finance and tax avoidance) and the impact of share price of Malaysian

public listed companies. Off-balance sheet finance and tax avoidance are some of the important

elements being discussed together with creative accounting practices and share price. Secondary

data was collected from data stream and from the information disclosed in the website of the

41
sampled public listed companies. The result indicates that off-balance sheet finance does

influence the financial performance of Malaysian public listed companies. The result of this

study could benefit the policy maker in order to responsively react on any issues and provides

specific guideline for the companies in applying certain judgment by referring to the accounting

standard.

Egolum and Onodi (2021) examined the effect of creative accounting practice on financial

reporting in Nigerian deposit money bank. Survey research design was adopted. Data were

obtained from questionnaires and analyzed with five-point likert’s scale and the three hypotheses

formulated were tested using t-test statistical tool with aid of SPSS statistical package version

20.0. The study found that a well-designed framework of accounting regulation curbs creative

accounting practices in corporate financial reporting and contributed to the bank distress in

Nigeria

Raed and Rakan (2022) studied the impact of creative accounting on financial statements in

Palestine. This study adopted a descriptive design of the ex-post facto type, with a sample of 100

auditors’ and academics’ perspectives. Questionnaires were sent to a random sample of

accounting instructors and auditors in Palestine. The result showed that accountants and

academics evaluated the impact of advanced accounting approaches on the reliability of financial

reporting to improve its credibility.

2.4 Gap in Literature

Existing studies have been done to examine the effect between creative accounting and

shareholder wealth across the globe but, little (Bankole et al., 2018; Essien & Udoetise, 2019;

Ezuwore & Agbo, 2020) has been done in Nigerian despite the prevalent corporate scandals.

42
This affects generalization due to cultural, economic and technological disparity between

countries the research was conducted and the Nigerian setting. A study of this nature is

paramount especially in a country like Nigeria but meanwhile, very little study has focused on

the subject matter, ignoring the gap yet uncovered.

Also, a few studies that has been carried out in Nigeria focused on public companies

(Oyadonghan & Igbo, 2014; Bankole et al., 2018, Etim & Akpan, 2019). In turn, this study tends

to focus on the banking sector in Nigeria which looks to cover the gap as it relates to industry

because the banking industry has that space still unfilled. The study will as well make its finding

to the most recent year 2021 in which no study has researched the relationship creative

accounting and shareholders wealth up to date in Nigeria as this will be the first, therefore, the

study also covers the time gap, by closing the period uncovered in previous studies.

43
2.5 Conceptual Framework
The conceptual framework shows the relationship between the independent and

dependent variables below

CREATIVE ACCOUNTING
Independent variable

SHAREHOLDERS WEALTH
Dependent variable
Earnings Management

Stock Price
TAX AVOIDANCE

TAX AVOIDANCE

44
 2.6 Summary of Empirical Review
S/N AUTHOR’S COUNTRY TOPIC METHODOLOGY FINDINGS GAP
NAME & OBJECTIVE
YEAR
1 Gathiga (2019) Kenya This study is The study use both The research found The study was limited
focused on the primary and out that many to three (3) years
effects of creative secondary data, organizations lacked period. More years
accounting on descriptive statistics this predictability can be covered to
shareholders used to analyze data meaning that the validate findings.
wealth and also tables and dividends that the
figures which will shareholders would
be used for data receive are correct
representation for and could correspond
better interpretation to the profitability of
and understanding. the organization.
The target
population is 65
public listed
companies in the
Nairobi stock
exchange market.
2 Godsday and Nigeria this paper The paper utilized The study found that The study is quite
Emmanuel examined structured IFRSs can be used to recent and relevant
(2016) international questionnaires tame creative but has limited
financial administered to 120 accounting. empirical reviews
reporting professionals
standards (IFRSs) (auditors, investors,
as a way of stockbrokers). The
taming creative Pearson Product
accounting as Moment Correlation
well as factors statistical tool was
that trigger used in analyzing
unethical the field data
accounting
practices in
Nigeria.
3 Oluwamayowa, Nigeria This study 90 firm-year Findings revealed More recent studies
Gbadegesin and examines the observations of ten that frequent changes are needed to be
Ebenezer (2022) effect of creative (10) consumer in inventory valuation carried out in the
accounting goods companies method and assets same location as the
practices on the listed on the valuation methods study seems to be
shareholders Nigerian Stock respectively have going out of date to
wealth Exchange (NSE). significant effect on validate findings.
Ex post facto shareholders wealth,
research design was while frequent
adopted using changes in
dataset for the depreciation methods
period 2011–2019 and liabilities
which were collated valuation methods do
from the annual not significantly

45
 reports and financial affect shareholders’
statements of the wealth.
listed consumer
goods companies.
Four hypotheses
were proposed and
tested using pooled
panel data
regression.
4 Adeyeye (2018) Nigeria This study Expost facto Findings from the More recent studies
empirically research design was analysis revealed on the same topic is
examined the adopted. Data were asset structure and needed to be carried
impact of creative collected from equity capital are out in the same
accounting Nigeria Security and negatively and location as the study
techniques on Exchange insignificantly related seems to be going out
firm financial Commission on to return on asset; of date to validate
statement listed deposit money Loans and advances findings.
banks in Nigeria is positively and
from 2008-2018. insignificantly related
Descriptive analysis to its returns on assets
and ordinary least while Total deposit
square were adopted liabilities is positively
for analysis. and insignificantly
related to return on
assets
5 Egolum and Nigeria This study Survey research The study found that Result of the study as
Onodi (2021) examined the design was adopted. a well-designed at the time of
effect of creative Data were obtained framework of publication is not
accounting from questionnaires accounting regulation timely as the study
practice on and analyzed with curbs creative was conducted to
financial five-point likert’s accounting practices 2016 but published in
reporting in scale and the three in corporate financial 2019.
Nigerian deposit hypotheses reporting and
money bank formulated were contributed to the
tested using t-test bank distress in
statistical tool with Nigeria
aid of SPSS
statistical package
version 20.0.

6 Raed and Rakan Palestine
(2022)
The impact of This study adopted a The result showed Surprisingly, the
creative descriptive design that accountants and scope of the study
accounting on of the ex-post facto academics evaluated was not mentioned in
financial type, with a sample the impact of the study
statements in of 100 auditors’ and advanced accounting
Palestine academics’ approaches on the
perspectives. reliability of financial
Questionnaires were reporting to improve

46
 sent to a random its credibility
sample of
accounting
instructors and
auditors in
Palestine.
7 Bankole, Nigeria This study was The study reviewed It found that frequent The study was
Ukolobi and designed to the theories and manipulation of limited to six (6)
McDubus establish the techniques of ageing schedule for years period. More
(2018) effect of creative creative accounting the purpose of years can be covered
accounting on as well as the determining bad and to validate findings
shareholders’ determinants of doubtful debts
wealth. shareholders wealth. provision had no Empirical Evidence
Empirical studies on significant effects on in the study was
creative accounting shareholders wealth. limited
were reviewed.
8 Imo (2020) Nigeria The study The study adopted The results of the More recent studies
examined the survey research study showed that: on the same topic is
relationship design. The aggressive earnings needed to be carried
between creative population of the management has a out in the same
accounting study comprised positive and location as the study
practices and twenty food and significant seems to be going out
financial beverage companies relationship with of date to validate
performance of in Nigeria that are return on asset, findings
food and beverage listed on the aggressive earnings
companies in Nigerian Stock management has a
Nigeria Exchange as at positive and
December 2020. significant
Simple random relationship with
sampling was used return on equity,
to select the income smoothing
respondents. has a positive and
Structured significant
questionnaire was relationship with
the data collection return on asset
instrument used
Abasiama, Eno Nigeria This study was to The data used in this The study found out Result of the study as
9 and Ese (2019) examine the effect study was obtained that earnings at the time of
of earnings from the annual management publication is not
management on reports of 10 quoted variables; sales timely as the study
shareholder’s financial banks on growth index has a was conducted to
wealth the Nigerian Stock positive insignificant 2015 but published in
maximization of Exchange which relationship with 2019.
banks listed on was sampled using market value added,
the Nigeria Stock the purposive growth index has a
Exchange sampling technique positive insignificant
from the population relationship with
of 15 banks. The market value added.
study covered the
period of eight years
(2010- 2017). A

47
 model was specified
and descriptive
statistics, correlation
analysis and
regression analysis
were carried.
10 Essien (2019) Nigeria The Effect of The quantitative The study findings This paper used only
Creative study adopted a revealed that income annual report and
Accounting on survey research smoothing, tax ignored other
Shareholders’ design with a target avoidance and corporate mass
Wealth in Money population of 134 changes in communication
Deposit Banks staff from ten (10) accounting policies means.
Listed Companies selected listed have effect on the
in Nigeria companies. Both shareholders wealth
primary and in the listed
secondary data were companies in Nigeria
used in this study.
For primary data,
the data collection
instrument was
questionnaires while
the secondary data
was derived from
financial reports and
related literature
11 Munene (2015) Kenya The effect of This study used a The researcher found Limited empirical
creative diverse research that the independent evidence were found
accounting on design; cross- variables explain in the study and more
shareholders’ sectional and 64.3% of the variance recent studies are
wealth in listed explanatory research in the shareholders required to be carried
companies in designs were wealth. It’s very clear out on the topic in the
Kenya adopted for primary that these same location to
data and time-series independent variables validate findings
for collecting influence to a large
secondary data. This extent the growth of
study therefore shareholders wealth.
adopted mixed
research design to
ensure that the data
collected and
analyzed addresses
the objectives of the
study. The study
comprised 64
companies listed on
the NSE. The target
population was
comprised of all
listed companies in
Kenya
12 Jones (2011) Istanbul The effect of He used logic The study findings A total of five (5) out

48
 creative analysis and found revealed that income of the ten (10)
accounting on that very large sized smoothing, tax companies were
shareholders’ firms were less avoidance and inevitably excluded
wealth in listed likely to have changes in during the data
companies in smoothing accounting policies collection process due
Istanbul behaviour than have effect on the to incomplete data.
small-sized firms, shareholders wealth
and firms in service in the listed
industry were less companies in Istanbul
likely to have
smoothing
behaviour than
firms in financial
industry
13 Sajid, Nazir, India The influence of Taking a sample of Study found that the The content analysis
Iqbal and Bilal dividend policy 75 companies from difference between used in the study may
(2012) on shareholder 2005-2010. By the book value of be affected by
wealth performing a equity and the subjectivity
multiple regression average market is
analysis highly significant
among companies
paying dividend
rather than non-
paying companies
14 Mazurina (2020) Malaysia Examine the Secondary data was The result indicates The study was limited
relationship of collected from data that off-balance sheet to four (4) firms as
creative stream and from the finance does well as three (3)
accounting information influence the years. More firms and
practices disclosed in the financial performance years can be covered
website of the of Malaysian public to validate findings
sampled public listed companies.
listed companies.
15 Calmes and Kenya This study is The study will use The research found This paper considered
Theoret (2019) focused on the both primary and out that many three African
effects of creative secondary data, organizations lacked countries with
accounting on descriptive statistics this predictability different policies and
shareholders used to analyze data meaning that the economic status. The
wealth and also tables and dividends that the findings of the study
figures which will shareholders would may not be
be used for data receive are correct generalized to every
representation for and could correspond African countries.
better interpretation to the profitability of
and understanding. the organization.
The target
population is 65
public listed
companies in the
Nairobi stock
exchange market.
16 Sanusi and Nigeria this paper The paper utilized The study found that Limited empirical

49
 Izedonmi (2014) examined structured IFRSs can be used to review in the study
international questionnaires tame creative
financial administered to 120 accounting.
reporting professionals
standards (IFRSs) (auditors, investors,
as a way of stockbrokers). The
taming creative Pearson Product
accounting as Moment Correlation
well as factors statistical tool was
that trigger used in analyzing
unethical the field data
accounting
practices in
Nigeria.
17 Alzoubi (2016) Joran This study 90 firm-year Findings revealed The study didn’t
examines the observations of ten that frequent changes focus on a particular
effect of creative (10) consumer in inventory valuation sector or industry, but
accounting goods companies method and assets from listed firms
practices on the listed on the Jordan valuation methods across many sectors.
shareholders Stock Exchange respectively have
wealth (NSE). Ex post significant effect on
facto research shareholders wealth,
design was adopted while frequent
using dataset for the changes in
period 2011–2019 depreciation methods
which were collated and liabilities
from the annual valuation methods do
reports and financial not significantly
statements of the affect shareholders’
listed consumer wealth.
goods companies.
Four hypotheses
were proposed and
tested using pooled
panel data
regression.
18 Gunny (2010) Nigeria This study Exposit facto Findings from the The study failed to
empirically research design was analysis revealed consider factors
examined the adopted. Data were asset structure and which directly
impact of creative collected from equity capital are contribute to
accounting Nigeria Security and negatively and performance, such as
techniques on Exchange insignificantly related company size or debt
firm financial Commission on to return on asset; levels of company.
statement listed deposit money Loans and advances Future research
banks in Nigeria is positively and should focus on these
from 2008-2018. insignificantly related areas.
Descriptive analysis to its returns on assets
and ordinary least while Total deposit
square were adopted liabilities is positively
for analysis. and insignificantly
related to return on

50
 assets
19 Efiok and Eton Nigeria This study Survey research The study found that The stud y sort to fill
(2012) examined the design was adopted. a well-designed the gap of time frame
effect of creative Data were obtained framework of and thus is recent and
accounting from questionnaires accounting regulation relevant to validate
practice on and analyzed with curbs creative findings of previous
financial five point likert’s accounting practices studies
reporting in scale and the three in corporate financial
Nigerian deposit hypotheses reporting and
money bank formulated were contributed to the
tested using t-test bank distress in
statistical tool with Nigeria
aid of SPSS
statistical package
version 20.0.
20 Idris (2012) Nigeria This study is The study will use The research found A total of five (5) out
focused on the both primary and out that many of the fifteen (15)
effects of creative secondary data, organizations lacked companies were
accounting on descriptive statistics this predictability inevitably excluded
shareholders used to analyze data meaning that the during the data
wealth and also tables and dividends that the collection process due
figures which will shareholders would to incomplete data.
be used for data receive are correct
representation for and could correspond
better interpretation to the profitability of
and understanding. the organization.

51
 CHAPTER THREE
METHODOLOGY
3.0 Introduction

Research methodology is the systematic and analytical process and procedures used to collect

data for a particular study in order to provide satisfactory answers to research problems. This

chapter discusses the research methodology under the following subheadings – research design,

population of the study, sample and sampling technique, model specification, discussion of

variables, sources of data and method of analysis.

3.1. Research Design

The study adopted ex-post facto design. This method is considered appropriate because it draws

historical data from the financial statements of the selected listed money deposit banks for

analysis and conclusion purpose.

3.2. Sources of Data

In order to meet the objective of this study, the study utilized only the secondary source of data.

This is because the estimation of the models in the study requires the use of time-series data in

the form of financial information which are available through the financial statements of the

sampled bank. The data were sourced from the annual reports and accounts of the sampled bank

for the years reviewed in the study (2012-2021).

3.3 Population of the Study

The population of the study comprises of twenty-five (25) deposit banks listed on the Nigerian

Exchange Group (NGX) as at December, 31st 2021 (ngxgroup.com).

52
3.4. Sample and Sampling Technique

In order to have a sizable number for this study, non-probability method in the form of

judgmental sampling technique is used. Based on the judgemental sampling technique, ten (10)

deposit money banks were chosen from 2012-2021.

3.5. Model Specification

The basic objective of the study is to examine the effect of creative accounting on the

shareholders wealth of Nigerian Banks. Earnings management, tax avoidance, and off-balance

sheet finance are the independent variables used to measure creative accounting. The dependent

variable which is shareholders wealth is proxied by Stock price (SP).

The model from Olamiju (2020) who examined the effect of creative accounting on the

shareholders wealth of industrial firms in Nigeria is adopted in this study is outlined below;

SP = b0 + b1EMit + b2OBSFit + b3ISit + µ ………………. Adopted model

Where:

SP = Stock Price

EM = Earnings Management

OBSF = Off-Balance Sheet Finance

IS = Income smoothing

Modifications were made on the model. Income smoothing being a variable for measuring

creating accounting is removed and replaced with tax avoidance. This study therefore, examine

53
the relationship between Earnings management, tax avoidance, and off-balance sheet finance and

stock price.

Expressing the models in functional form it becomes:

Model 1:

SP = f (CA)…………..3.1

SP = f (EM, TA, OBSF)…………..3.2

Where:

SP = Stock Price

EM = Earnings Management

TA = Tax Avoidance

OBSF = Off-Balance Sheet Finance

Transforming this model into a multivariate regression model, it becomes:

Model:

SPit= b0 + b1EMit + b2TAit + b3OBSFit + uit………….3.2

Where:

b0= Intercept of the model

54
b1= coefficient of Earnings management

b2= coefficient of Tax avoidance

b3= coefficient of off-balance sheet finance

u= Error Term

3.6. Measurement of Variables

Variable name Description Measurement Source
Independent
variable
Earnings This has to do with This can be calculated by Goksel and
Management artificially improving accruals divided by total Iiker (2020)
earnings and profits by assets
recognizing sales revenue
before it has been earned.

Tax Avoidance Tax avoidance entails a computed by multiplying Ikponmwosa

firm’s conscious actions
directed at reducing its tax
obligations by adopting
approaches which could
either be legal or illegal
Off balance These are transactions
sheet finance arranged deliberately so as to
enable an entity to keep
significant assets and
liability out the statement of
financial position
Dependent
variable
Stock price A stock price is the amount
someone is willing to pay for
a company’s shares at a
particular point in time.
3.7. Method of Analysis
To achieve the stated objectives and also to provide answers to the research questions,
profit before tax with the and Chizoba
difference between (2018)
effective tax rate and
statutory tax rate
Off balance sheet finance Ablaza (2021)
is measured as the ratio of
off-balance items to the
total assets.
The stock price is Nafia & Tania
measured by the price to (2021)
earnings ratio multiplied by
earnings per share

information obtained on all the variables will be analyzed using the descriptive and inferential
55
statistics. The hypotheses statements will be tested using the multiple regression analysis in order

to determine the effect of creative accounting on shareholder’s wealth in Nigeria. The hypotheses

will be tested using the E-views 10 statistical package.

56
 CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION
4.1. Introduction
This chapter deals with the presentation, analysis and interpretation of data collected and

analyzed empirically for the purpose of achieving the objectives of this study. The data analyzed

and presented is the empirical result of dependent and independent variable used in this research

work

4.2 Descriptive Statistics

Table 4.1 presents the descriptive statistics for the dependent and explanatory variables. The

descriptive statistics as presented in Table 1 shows the summary of ten years means and standard

deviations for the variables employed in the study. The results obtained from the descriptive

statistics presents an average mean value for Stock Price (SP) as 2.46 with minimum and

maximum values of -127.62 and 79.160, respectively, for the selected listed deposit money banks.

The standard deviation stood at 21.97, indicating the dispersion in values for stock price from the

mean across the sampled banks. Similarly, descriptive results on earnings management showed an

approximate mean value of 0.58 with a standard deviation of 7.04. The table also presents an

approximate mean value for Tax Avoidance as 0.78, with an approximate standard deviation of

0.41. In the same vein, the table also presents the results of the off-balance sheet finance with a

mean value of 0.50 and a standard deviation value of 0.69

The Jargue-Bera (JB) statistics also indicates that most of the data series have normal

distribution. This is indicated by the probability value of the JB statistics which for most series

are significantly different from zero at 1% levels of significance. This justifies the statistics

significance of the variables of the study.

57
Skewness and kurtosis helps to provide information about the shape of a distribution. The

skewness indicator is used to indicate the sign of asymmetry and deviation of a distribution, The

result from the table showed that stock price which has a skewness value of -2.01, is negatively

skewed because it has a value <1 while earnings management (-0.04), and tax avoidance (-1.41)

whose values are <1 are also negatively skewed. However, off balance sheet finance has a value

of 2.55 indicates that it is positively skewed since it has skewness value of >1.

On the other hand, the kurtosis indicator which is used to explain the rate of flattening or

peakedness of a distribution revealed that stock price (18.98), off balance sheet finance (9.66) are

leptokurtic because their kurtosis values are >3. The kurtosis indicator revealed that earnings

management has a value of 2.99 which indicates that it is pletokurtic since the kurtosis value is

<3. However, the indicator revealed that tax avoidance that a kurtosis value of 3.00 which

indicates that the distribution is Metokurtic. The result shows that all variables selected for the

study after being logged are normally distributed.

Therefore, a parametric analysis of creative accounting on the shareholder’s wealth of Nigeria

deposit money banks variable is clearly justified.

58
Table 4.1 Descriptive Statistics
Variable SP EM TA OBSF

 Mean  2.468111  0.581073  0.788889  0.500562

 Median  1.825000  0.006847  1.000000  0.221535

 Maximum  79.16000  16.71068  1.000000  3.411716

 Minimum -127.6200 -16.17806  0.000000  7.04E-07

 Std. Dev.  21.97725  7.040642  0.410383  0.692799

 Skewness -2.013016 -0.049625 -1.415785  2.554802

 Kurtosis  18.98057  2.991750  3.004448  9.661694

 Jarque-Bera  1018.454  0.037195  30.06679  264.3234

 Probability  0.000000  0.981575  0.000000  0.000000

 Sum  222.1300  52.29653  71.00000  45.05055

 Sum Sq. Dev.  42986.94  4411.787  14.98889  42.71741

 Observations  100  100  100  100

Source: Researcher’s computation, 2023

59
4.3 Correlation Matrix
The correlation matrix explains the degree of relationship between the dependent and

independent variables of the study. The summary of the associations among the variables of the

study is presented in table 4.2

Table 4.2 Correlation Matrix

Covariance Analysis: Ordinary
Sample: 2012 2021
Included observations: 100

Correlation
Probability SP  EM  TA  OBSF 
SP  1.000000
----- 

EM  -0.041526 1.000000

0.6976 ----- 

TA  -0.029446 0.048172 1.000000

0.7829 0.6521 ----- 

OBSF  -0.098076 0.190996 -0.362019 1.000000

0.3578 0.0713 0.0005 ----- 

Source: Researcher’s computation, 2023

Table 4.2 present the correlation matrix of the independent and dependent variables used in this

study. It basically reflects the relative strength of the relationship between the explanatory

variables. The table revealed that Earnings management, tax avoidance and off-balance sheet

finance of the selected banks are negatively correlated with the stock price. The values of -

0.041526, -0.029446 and -0.098076 of the variables indicated p values of 0.6976, 0.7829 and

0.3578 that are all statistically insignificant at 5% respectively.

Most of the variables exhibited weak association, the overall relationship for the independent

variables among themselves is insignificant and as a result, it is not enough to surmise that multi-

collinearity exists among the explanatory or exogenous variables of the study. However,
60
according to Gujarati (2014); Okere (2017), multicollinearity could only be a problem if

correlation coefficient between the regressors is above 0.80. According to the analysis above, it

can be seen that there is absence of multicollinearity because all the variables are not highly

correlated. As a result, there is absence of harmful multi-co linearity. This therefore, indicates the

adequacy of fitting the model of the study with four independent variables.

4.3.1 Normality Test

The test helps to establish if the selected variables are normally distributed. i.e. skew symmetry

and leptokurtic shape. The decision process to the null hypothesis states that the variable

normally distributed against the alternative such that a greater probability value than 5% level of

significance validate normal distribution position and vice versa.

Source: Researcher’s computation, 2023

61
4.4 Analysis of Regression Results and Discussion of Findings
Table 4.3 Pool OLS Result

Variable Coefficient Std. Error t-Statistic Prob.  

C 7.499081 6.281023 1.193927 0.2358

EM -0.046194 0.343217 -0.134590 0.8933

TA -3.895932 6.200495 -0.628326 0.5315

OBSF -3.857009 3.737436 -1.031993 0.3050

R-squared 0.014681     Mean dependent var 2.468111

Adjusted R-squared -0.019690     S.D. dependent var 21.97725

S.E. of regression 22.19256     Akaike info criterion 9.080818

Sum squared resid 42355.84     Schwarz criterion 9.191920

Log likelihood -404.6368     Hannan-Quinn criter. 9.125621

F-statistic 0.427138     Durbin-Watson stat 1.810853

Prob(F-statistic) 0.734052

Source: Researcher’s Computation, 2023

In testing for the cause-effect relationship between the dependent and independent

variables for the purpose of this study, the two widely used panel data regression estimation

techniques (random effect and fixed effect) were adopted, this study presents the two panel data

estimation techniques results (fixed effect and random effect). The results revealed the difference

in coefficients, signs and the number of insignificant variables.

62
Table 4.4 Fixed Effect Result

Variable Coefficient Std. Error t-Statistic Prob.  

C 7.585134 6.537138 1.160314 0.2496

EM 0.019636 0.377132 0.052067 0.9586

TA -6.818175 6.736091 -1.012186 0.3147

OBSF 0.500136 4.518286 0.110692 0.9122

Effects Specification

Cross-section fixed (dummy variables)

R-squared 0.138999     Mean dependent var 2.468111

Adjusted R-squared -0.021721     S.D. dependent var 21.97725

S.E. of regression 22.21465     Akaike info criterion 9.190393

Sum squared resid 37011.79     Schwarz criterion 9.607028

Log likelihood -398.5677     Hannan-Quinn criter. 9.358404

F-statistic 0.864852     Durbin-Watson stat 2.018167

Prob(F-statistic) 0.598557

Source: Researcher’s Computation, 2023

63
Table 4.5 Random Effect Regression Result

Variable Coefficient Std. Error t-Statistic Prob.  

C 7.499081 6.287274 1.192740 0.2363

EM 0.046194 0.343559 0.134457 0.0340

TA -3.895932 6.206667 0.627701 0.5319

OBSF 3.857009 3.741155 1.030967 0.0305

Effects Specification

S.D.   Rho  

Cross-section random 0.000000 0.0000

Idiosyncratic random 22.21465 1.0000

Weighted Statistics

R-squared 0.014681     Mean dependent var 2.468111

Adjusted R-squared -0.019690     S.D. dependent var 21.97725

S.E. of regression 22.19256     Sum squared resid 42355.84

F-statistic 0.427138     Durbin-Watson stat 1.810853

Prob(F-statistic) 0.734052

Unweighted Statistics

R-squared 0.014681     Mean dependent var 2.468111

Sum squared resid 42355.84     Durbin-Watson stat 1.810853

Source: Researcher’s Computation, 2023

64
Table 4.6 Summary of the Hausman test

Correlated Random Effects - Hausman Test

Equation: Untitled

Test cross-section random effects

Chi-Sq.

Test Summary Statistic Chi-Sq. d.f. Prob. 

Cross-section random 3.234779 3 0.00468

Source: Researcher’s Computation, 2023

In selecting from the two panel regression results, the hausman test was conducted and

the test revealed that random effect is more preferred to fixed effect. A look at the p-value of the

hausman test (0.00468) implies that we should accept random effect relationship at 5% level of

significance. This implies that we should adopt the random effect panel regression results in

drawing our conclusion and recommendations. This also implies that the random effect results

tend to be more appealing statistically when compared to the fixed effect. Following the above,

the discussion of the random effect becomes imperative.

4.5 Testing of Hypothesis and Discussion of Findings.

4.5.1 Earnings management and Stock Price
Restatement of Hypothesis One

H0: Earnings management has no significant effect on the stock price of Nigeria deposit money

banks.

65
H1: Earnings management has significant effect on the stock price of Nigeria deposit money

banks

Discussion criterion

1. Reject H0: Earnings management has no significant effect on the stock price of Nigeria

deposit money banks.

2. Accept H1: Earnings management has significant effect on the stock price of Nigeria

deposit money banks

Result obtained for Hypothesis One

The result in Table 4.5 revealed that the earnings management has a positive relationship on the

stock price of listed deposit money banks in Nigeria. This can be observed from the value of beta

coefficient of (0.046194) with p-value of 0.0340 indicating that the p-value is statistically

significant at 5%. Whereas the stock price of deposit money banks is of great importance on its

future operating activities there is therefore the need to know the determinants of earnings’

management and the influence on stock price. This result serves as a basis for rejecting the null

hypothesis and accepting the alternative hypothesis which states that earnings management has

significant effect on the stock price of Nigeria deposit money banks.

4.5.2 Tax Avoidance and Stock Price

Restatement of Hypothesis Two

H0: There is no significant effect of tax avoidance on stock price of Nigeria deposit money banks

H1: There is significant effect of tax avoidance on stock price of Nigeria deposit money banks.

66
Decision criterion

1. Reject H0: There is no significant effect of tax avoidance on stock price of Nigeria

deposit money banks.

2. Accept H1: There is significant effect of tax avoidance on stock price of Nigeria deposit

money banks

Result obtained for Hypothesis Two

The table 4.5 also showed that tax avoidance has a negative relationship on the stock price of the

Nigerian deposit money banks. This can be seen from the value of beta coefficient of -3.895932

with p value of 0.5319 indicating that the p-value is not statistically significant at 5%. This

implies that tax avoidance has no significant effect on the stock price of Nigerian deposit money

banks. Hence, this serves as a basis for rejecting the alternative hypotheses and accepting the null

hypotheses which states that there is no significant effect of tax avoidance on stock price of

Nigeria deposit money banks.

4.5.3 Off Balance Sheet Finance and Stock Price

Restatement of Hypothesis

H0: Off balance sheet finance has no significant effect on the stock price of Nigeria deposit

money banks.

H1: Off balance sheet finance has significant effect on the stock price of Nigeria deposit money

banks.

67
Decision criterion

1. Reject H0: Off balance sheet finance has no significant effect on the stock price of

Nigeria deposit money banks.

2. Accept H1: Off balance sheet finance has significant effect on the stock price of Nigeria

deposit money banks.

Result obtained from Hypothesis Three

The table 4.5 also showed that off balance sheet finance has a positve relationship on the stock

price of the Nigerian deposit money banks. This can be seen from the value of beta coefficient of

(3.857009) with p value of 0.0305 indicating that the p-value is statistically insignificant. This

signifies that off balance sheet finance has no significant effect on the stock price of Nigeria

deposit money banks. This result serves as a basis for rejecting the null hypothesis and accepting

the alternative hypothesis which states that off balance sheet finance has significant effect on the

stock price of Nigeria deposit money banks.

68
 CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary
This study was conducted to examine the effect of creative accounting on shareholders

wealth of listed deposit money banks on the Nigeria Exchange Group. The study was divided

into five chapters. The first chapter discussed the background issues, development and opinion

surrounding creative accounting and shareholder’s wealth by different scholars and authors as

well as the statement of problem which led to developing three objectives and formulating three

hypotheses for the research with a scope covering ten (10) years, from 2012-2021.

The review of the concept and measurement of creative accounting and shareholder’s

wealth was discussed as well as the proxies of the independent variables and the dependent

variable. The theoretical framework that underpinned the study was also discussed. Ex-post facto

research design was used in measuring the relationship among the variables of the study. Data

was collected from secondary sources through the annual reports and accounts of 10 sampled

banks out of a population of listed deposit money banks in Central bank of Nigeria and the

Nigerian exchange group that have complete financial records either on their website or in the

office of the Nigeria Exchange Group. Multiple regressions were used to test the three

hypotheses formulated by the study. The result of the descriptive statistics, correlation matrix

and regression were presented, analyzed and discussed in chapter four.

Finally, chapter five draws conclusion and also makes recommendation, which if

employed will prove beneficial.

69
5.2 Conclusion
As a corollary of the discussion and analysis in the preceding chapter, this study

concluded that; Earnings management and off-balance sheet finance has a positive relationship

on the stock price of Nigeria deposit money banks. Whereas, tax avoidance has a negative

relationship on stock price. In the same vein, earnings management and off balance sheet finance

is has statistically significant effect on the stock price of deposit money banks in Nigeria, but tax

avoidance resulted in having a statistically non-significant effect on the stock price of deposit

money banks in Nigeria.

5.3 Recommendations
In line with the findings of the study, the following recommendations are made:

1. The management of Nigeria deposit money banks should ensure that proper internal

control mechanisms are put in place in order to check the problem of tax avoidance and

other creative accounting practices, which had been responsible for several collapses of

companies in Nigeria and beyond. These internal systems are expected to curb the vices

of creative accounting generally as this transform to poor shareholders wealth.

2. In particular, tax avoidance should be hedged since the practice amongst firms does not

give a true reflection of the shareholders wealth. There should also be a policy to ensure

growth of deposit money banks without trying to affect the optimization of shareholders

wealth.

3. Regulators of the accounting profession should reduce the areas allowed for alternatives

in the treatment of financial transactions in financial reporting. This is to check or reduce

the chances of creative accounting and its negative impacts on financial reporting in

Nigeria.

70
4. Government should also embark on proper enlightenment campaigns to preach against

the use of artificial transactions in financial statements to reduce the practice of creative

accounting.

5. Further, the preparers of financial statements should be more committed to displaying the

agency roles delegated to them by the stakeholders by preparing and presenting financial

statements devoid of harmful creative accounting practices.

6. Finally, management should use cost recovery methods such as accelerated depreciation

effectively to manage firms better since the findings shows that mismanagement of cash

flows has been the norm.

71
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