INFLUENCE OF ACCRUALS EARNINGS MANAGEMENT ON EARNINGS PREDICTABILITY OF LISTED FIRMS IN KENYA
Beatrice Wanjiru Ndungu - Tutorial Fellow, School of Business Economics and Humanities, Mama Ngina University College, Kenya
Dr Gordon Opuodho (PhD) - Lecturer, School of Business and Economics, Jomo Kenyatta University of Agriculture and Technology, Kenya
Tobias Olweny (PhD) - Senior Lecturer, School of Business and Economics, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
This study examines the impact of accrual-based earnings management on the predictability of earnings among listed firms in Kenya. Earnings predictability is crucial for investors and stakeholders as it enhances decision-making by providing reliable financial information. However, managers may manipulate earnings through discretionary accruals, thereby affecting the quality and reliability of reported earnings. The study employs a quantitative approach, utilizing financial data from firms listed on the Nairobi Securities Exchange (NSE) between 2010 and 2022. The study adopts a modified Jones Model to determine discretionary actuals from the financial data of the listed firm’s reports. Earnings per share and share price are used to determine earnings predictability by computing the earnings price ratio. Through an explanatory research design and panel data regression analysis, the study investigates the extent to which accruals-based earnings management influences the predictability of earnings. It differentiates between discretionary and non-discretionary accruals, assessing their respective impacts on financial statement reliability. Analysis of both descriptive and inferential results is presented after conducting appropriate model and data test. The findings reveal that discretionary accruals have a varying impact on earnings predictability across sectors. The study finds a weak but significant positive correlation (r = 0.141, p < 0.01), suggesting that while accrual-based earnings management slightly enhances predictability, excessive manipulation can undermine financial statement reliability. These results highlight the need for stringent financial reporting standards and robust corporate governance mechanisms to limit earnings management and improve financial transparency. The study recommends stronger regulatory oversight and further research on the role of external auditors in mitigating earnings manipulation in emerging markets.