Earnings Management Impact on Cost of Capital: An Empirical Investigation of Non-Finance Listed Firms in Nigeria

Abstract

Capital is a very veritable item in undertaking any business enterprise. If the capital structure is faulty, the business will find it difficult to survive. Generally, the cost of capital is a major pitfall for most businesses operating in Nigeria due to high interest rates, therefore for an existing business, capital can easily be built up through earnings. It is against this background that this study examines the influence of earnings management on Nigeria cost of capital among publicly traded non-finance companies on the floor of the Nigeria exchange group using a data set from the period of 2011 through 2020. The Modified Jones discretionary accrual model measures was used; the independent variable of earnings management was considered while the cost of debt, cost of equity, and weighted average cost of capital are the dependent factors. As a result, the study incorporated the variables of leverage and cashflow into the models. The panel fixed and random effect regression procedures are the econometric methods used in this study. Taking all of this into account, the study found that cost of capital is unaffected by earnings management. The study recommends that the traditional ways of reviewing cost of capital balancing between loans and equity is still the best option in arriving at an optimum cost of capital among listed non finance companies.