Nexus Between Real Earnings Management (REM) and Company's Profitability? An Empirical Analysis of Listed Non-Financial Companies in Sub-Saharan Africa
Saheed AkandeShittu
Accountancy Department, Federal Polytechnic Ayede, Oyo State, Nigeria Email: shittusa@federalpolyayede.edu.ng
Olufemi AdebayoOladipo
Accounting and Finance Department, Landmark University, Omu-Aran, Kwara State, Nigeria Email: oladipo.olufemi@lmu.edu.ng
Keywords: Tobin’s Q; return on assets; real earnings management; companies’ profitability
Abstract
This study investigates how Real Earnings Management (REM) influences the profitability of companies across six sub-Saharan African countries. The sample includes listed non-financial firms from Ghana, Kenya, Nigeria, South Africa, Tanzania, and Zimbabwe. Profitability is measured using Return on Assets (ROA) and Tobin’s Q, while REM is assessed using the Rowchowdhury model. Secondary data from the annual financial reports of the selected companies were analyzed using panel data regression techniques. Findings reveal that REM has a significant negative effect on both ROA and Tobin’s Q in Nigeria, Ghana, and South Africa. Conversely, REM has a significant positive impact on ROA in Tanzania and Zimbabwe. In Kenya, however, REM shows a negative but statistically insignificant effect on ROA and Tobin’s Q. The study concludes that REM significantly influences profitability among firms in sub-Saharan Africa. Consequently, it recommends the implementation of stronger monitoring and control mechanisms, both internally and externally, to safeguard investors' wealth and promote the economic growth and development of these nations.
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