Earnings Quality, Institutional Ownership, and Firm Value: Empirical Evidence from Nigerian Listed Companies

This study empirically examines the relationships among earnings quality, institutional ownership concentration, and firm value in companies listed on the Nigerian Exchange Group. Earnings quality, broadly defined as the extent to which reported earnings faithfully represent underlying economic performance, has been identified in global accounting literature as a critical driver of investor confidence and valuation. Institutional investors, due to their analytical sophistication and monitoring capabilities, are hypothesized to enforce higher earnings quality standards through active governance engagement. This study uses panel data from 45 listed companies across banking, manufacturing, insurance, and consumer goods sectors for the period 2018 to 2023. Earnings quality is measured using accrual quality, earnings persistence, and the Dechow-Dichev model of accrual estimation error. Institutional ownership is derived from company share registry data, and firm value is proxied by Tobin's Q. Two-stage least squares regression is employed to address potential endogeneity between ownership and earnings quality. Results indicate that higher institutional ownership is significantly associated with improved earnings quality, and that earnings quality, in turn, has a significant positive effect on firm value. The interactive effect of institutional ownership and earnings quality on firm value is also significant, suggesting a complementary governance role. The study concludes that institutional investors contribute to earnings quality improvement and value creation in Nigerian listed companies. It recommends that the Securities and Exchange Commission incentivize long-term institutional investment through favorable capital gains treatment for qualifying holdings.

Keywords: earnings quality, institutional ownership, firm value, Nigerian Exchange Group, accrual quality.