ABSTRACT
Earnings management practices have taken center stage in most businesses; today, most firms
have adopted various practices to enhance financial performance. Even though these practices
have in some instances been used for wrong reasons that have led to business failures, the
practices are still embraced by most firms to boost performance. It is in this light that this
study sought to determine the effect of earnings management practices on financial
performance of firms in Nairobi. The specific objectives of the study were to determine the
effect of revenue management, expense management and assets and liability management on
financial performance of non-financial firms listed with NSE in Nairobi. The study was
anchored on: signaling theory which enable firms to send signals to stakeholders on financial
health, performance and future prospects; agency theory which explains the relationship
between principles and agents and; institutional theory which looks at how firms interact with
environment. This study is useful to the management and shareholders of firms in Kenya,
Institute of Certified Public Accountants of Kenya [ICPAK]. Using descriptive and inferential
research designs, the study sampled 164 senior managers drawn from accounts departments in
41 non-financial firms listed with NSE in Nairobi using stratified sampling procedures with
80 responding to questionnaires. Data analysis was done by use of SPSS version 21.0. Both
descriptive and inferential analyses were done. The study found that revenue management
enhanced financial performance of firms and that the firms undertook various revenue
management practices among them revenue timing, revenue projections, shifting of earnings
and revenue recognition to enhance financial performance. The study also found that expense
management practices promoted financial performance of non financial firms listed with NSE
and that good expense management practices involving recognition of expenses, reserves and
inventory as well as reduction in discretionary expenditures influenced the firms’
performance. The study found assets and liability management by firms does not promote
financial performance of firms and that overstating assets and understating liabilities, and
concealment of liabilities negatively affected financial performance of firms. However, it was
also found that proper inventory management practices, proper management of accrued
payable expenses and accounts payable promotes profitability performance of firms. Further,
the study found that accounting regulations did not fully mediate in the relationship between
earnings management practices and firms’ financial performance and that accounting
flexibilities allowed firms to engage in inappropriate earnings management. The study
recommends that firms need to come up with appropriate rules and guidelines on earnings
management practices. It further recommends that ICPAK to develop policies supporting
appropriate earnings management practices by firms so as to promote financial performance.
WANGUI, N (2021). Earnings Management And Financial Performance Of Listed Non Financial Firms In Nairobi County, Kenya. Afribary. Retrieved from https://afribary.com/works/earnings-management-and-financial-performance-of-listed-non-financial-firms-in-nairobi-county-kenya
WANGUI, NDUNG’U "Earnings Management And Financial Performance Of Listed Non Financial Firms In Nairobi County, Kenya" Afribary. Afribary, 01 Jun. 2021, https://afribary.com/works/earnings-management-and-financial-performance-of-listed-non-financial-firms-in-nairobi-county-kenya. Accessed 08 Oct. 2024.
WANGUI, NDUNG’U . "Earnings Management And Financial Performance Of Listed Non Financial Firms In Nairobi County, Kenya". Afribary, Afribary, 01 Jun. 2021. Web. 08 Oct. 2024. < https://afribary.com/works/earnings-management-and-financial-performance-of-listed-non-financial-firms-in-nairobi-county-kenya >.
WANGUI, NDUNG’U . "Earnings Management And Financial Performance Of Listed Non Financial Firms In Nairobi County, Kenya" Afribary (2021). Accessed October 08, 2024. https://afribary.com/works/earnings-management-and-financial-performance-of-listed-non-financial-firms-in-nairobi-county-kenya