EARNINGS MANAGEMENT PRACTICES AND ENTERPRISE VALUE OF LISTED PHARMACEUTICAL COMPANIES IN NIGERIA

Abstract

This study examined the impact of earnings management practices on the enterprise value of publicly traded pharmaceutical firms in Nigeria. The ex post facto research design was chosen as the most suitable approach. Data was gathered from a sample of six listed pharmaceutical companies over a thirteen-year period, spanning from 2010 to 2022. Through content analysis, relevant data was extracted from the annual audited and published financial reports of the selected firms. Earnings management practices were assessed using discretionary accruals management (DAC), real activities management (REC), and non-discretionary accruals management (NDA), while firm value was evaluated based on market capitalization (MCP) and book value (BKV). The panel least squares estimation technique was applied for data analysis, with diagnostic and robustness tests conducted beforehand. Additionally, descriptive statistics were used to summarize key characteristics of the dataset, and the Hausman test was performed to determine the appropriate model selection between fixed and random effects. The findings revealed that discretionary accruals management had a negative but statistically insignificant relationship with enterprise value suggesting its limited impact on firm valuation in the sector. In contrast, real activities management reported significant relationships with enterprise value - indicating short-term boosts to market-based valuation metrics. It was thus suggested that companies prioritize robust internal controls systems and governance frameworks in order to reduce reliance on accrual-based manipulations. Companies are advised to use real activities management cautiously and ensure it aligns with long-term growth goals. It is further suggested that if regulators should mandate periodic disclosure of real earnings management activities, this will help to promote transparency.