Appraisal of Earnings Management Practices in Quoted Banks in Nigeria

Earnings management in the banking sector raises significant concerns about the integrity of financial reporting and the reliability of performance information available to depositors, investors, and regulators. This study appraises earnings management practices among deposit money banks quoted on the Nigerian Exchange Group for the period 2016 to 2022. A longitudinal research design was adopted using secondary data from the audited annual financial statements of ten quoted banks. Earnings management was detected using the modified Jones model to estimate discretionary accruals, which served as the primary earnings management proxy. Additional indicators included loan loss provision manipulation and income-smoothing behaviour measured by the coefficient of variation of net income. Descriptive statistics and one-sample t-tests were employed to assess whether discretionary accruals deviated significantly from zero. Results showed that mean discretionary accruals were positive and statistically significantly different from zero (mean = 0.034, t = 4.87, p < 0.01), indicating systematic upward earnings management. Eight of the ten sampled banks engaged in loan loss provision manipulation to smooth earnings across at least two of the seven study years. The study concludes that earnings management is a widespread practice in Nigerian quoted banks, undermining the quality of financial disclosures. It recommends strengthening forensic audit capacity at the Financial Reporting Council of Nigeria and the Central Bank of Nigeria to detect and deter manipulative reporting practices. Keywords: earnings management, discretionary accruals, quoted banks, financial reporting, Nigerian Exchange Group