Investigating into Earnings Management and the Performance of Selected Listed Firms in Ghana

Abstract

Earnings management is crucial for the growth and survival of a firm. Most firms indulge in earnings management in order to report certain targeted earnings, but the practices of earnings management have led to the collapse of lot of firms such as Royal A-hold, Worldcom in the U.S.A and lot more across the world.

The extent of earnings management among listed firms in Ghana was still not well studied and therefore there was the need for a detailed research on earnings management. This thesis investigated the existence of earnings management among some selected listed firms in Ghana and their performances from the period of 2008 to 2013. Discretionary accruals which were used as a measure for earnings management were derived from the modified Jones model and return on assets (ROA) were also used as firm performance indicator. The thesis also determined the impact of earnings management on performance. The results showed that firms in Ghana indulged in earnings management. Also the results indicated that earnings management had a negative impact on performance.

The study recommends that prospective investors must analyse financial statements of firms critically in order to avoid throwing their monies into firms that suffer from going concern problems. Also the study proposes that corporate governance practices and regulations should be wholly enforced in firms in order to protect the interest of shareholders.