PPOOSSSSEESSSSIIOONN FFOORRMMAATTIIOONN AANNDD EEAARRNNIINNGGSS MMAANNAAGGEEMMEENNTT OOFF LLIISSTTEEDD CCHHEEMMIICCAALL AANNDD PPAAIINNTTSS FFIIRRMMSS IINN NNIIGGEERRIIA
PPOOSSSSEESSSSIIOONN FFOORRMMAATTIIOONN AANNDD EEAARRNNIINNGGSS MMAANNAAGGEEMMEENNTT OOFF LLIISSTTEEDD CCHHEEMMIICCAALL AANNDD PPAAIINNTTSS FFIIRRMMSS IINN NNIIGGEERRIIA
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Date
2014-12
Authors
MUSA, FARUK ADEIZA
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Abstract
Almost two decades after the global financial crises of 90’s which was blamed on the pervasiveness of earnings management, the concept still dominates financial literature. Efforts have been made by researchers in finding out the cause and possible solution. Ownership spread and control, otherwise known as Possession Formation have been identified to have an immeasurable role in mitigating management excessiveness and opportunistic behaviour in misrepresentation of underlying economic reality of a firm, but available literature in this area are mixed and inconclusive. Therefore, the study seeks to examine the influence of Possession Formation on Earnings Management of listed Chemical and Paints firms in Nigeria. Possession Formation was proxied by managerial ownership, institutional ownership, Block-holding and Foreign Ownership, while Earnings management was represented by modified Jones (Dechow, Sloan and Sweeney, 1995) model. Using 56 firm-year paneled observations, Fixed and Random effect were estimated. Secondary data was collected from the eighth firms listed under the Chemical and Paints sectors of the Nigeria Stock Exchange for the period 2006-2012. The findings revealed that, managerial ownership is positively and significantly influencing the earnings management of listed chemical and paints firms, while Institutional ownership, and foreign ownership were found to have negative and significant influence on earnings management of listed chemical and paints firms in Nigeria. However, Block Holdings were found to have an insignificant contribution to earnings management of listed Chemical and Paints firms in Nigeria. Based on the above findings, the study concluded that Possession formation have a great influence in checkmating the opportunistic behaviours of managers in listed Chemical and Paints firms in Nigeria. It is therefore recommended that the proportion of share held by management should be reduced to an average of 15%, while the proportion of share held by both Institutional investors and foreign investors should be increased to an average of 50 and 30% as this will constrain managers from abusive accounting and guarantee great reliance by investors on the quality of financial reports.
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PPOOSSSSEESSSSIIOONN FFOORRMMAATTIIOONN AANNDD EEAARRNNIINNGGSS MMAANNAAGGEEMMEENNTT OOFF LLIISSTTEEDD CCHHEEMMIICCAALL AANNDD PPAAIINNTTSS FFIIRRMMSS IINN NNIIGGEERRIIA
Keywords
POSSESSION, FORMATION, EARNINGS, MANAGEMENT