Motivation factors for earning management practice in Kenyan firms: case for public listed corporations.
Date
2013
Authors
Kaboyo, Onesmus Waiguru
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
The purpose of this study was to examine the extent to which earning management was practiced in Kenyan public listed corporations, Specifically to establish the motivation behind the practice of earnings management in public listed corporation in Kenya, establish the extent to which earnings management is practiced in the corporations, and also establish the relationship between incentives structures and the practice of earnings management in those corporations. The Agency and the stakeholder theories guided the study, exploratory research design was adopted. The study population included all the 56 public listed corporations. Simple random sampling method was used to get 33 public listed corporations as the representative sample. Questionnaire tools were used to collect the required information and the return rate was 100%. The respondents were staff who worked in the finance department. It was established that the factors more likely to be responsible for earnings management in public listed corporations in Kenya are; High shareholders‟ expectations in terms of high profitability from management; Poor financial performance of a company that negatively affects its reputation in the public; and Management incentives based on company performance induces managers to mis-report financial performance. The factors that require further investigations include; Purposeful possession of the company shares by management with intent to sell them to increase their wealth, Weak internal controls systems of the company, Management subjective judgment on adjustments of accounts receivable and inventory with no proper accounting procedures; and High external auditor turnover. The relationship between the factors influencing earning management practice in Kenyan firms‟ was established. However the coefficient of determinant (R2) was 0.31 suggesting a weak relationship between the dependent and the independent variables suggesting that there are other variables responsible for variations in earnings management other than those identified by this study.
other ways listed companies could achieve earnings management in public listed companies include; Expectations of shareholders based on industry performance, Pressure for management to show good results, poor accounting systems, that are difficult to understand thereby giving room to alterations, to avoid the issue of profit warning, to prevent theft of company resources from being detected, to avoid payment of heavy taxes, to avoid alienating current investors and new investors, to avoid pressure to yield to workers asking for higher wages, to ensure company sustainability, Lack of qualified senior lever team, Motivation of company staff with good results , to increase goodwill of shares performing poorly in the stock exchange, to safeguard management reputation through financial performance, to meet the statutory requirements , to safeguard the Tenure of the head of finance , Poor application of international reporting standards, and Related party transactions. The study recommended regulation guiding share ownership by management and employees of respective firms is instituted by the regulating authorities. Further research was recommended on the other additional factors responsible for the earnings management practice since the regression model developed out of the factors identified by this study only accounted for 31 percent of the variations.
Description
A Thesis Submitted In Partial Fulfillment for the Degree of Master of Commerce
Keywords
Motivation, Earning management, Public listed firms, Kenya