REVISITING REAL EARNINGS MANAGEMENT AND FINANCIAL PERFORMANCE NEXUS IN NIGERIA: A PANEL ARDL MODELING OF LISTED OIL AND GAS COMPANIES

Abstract

The study aimed to assess the impact of real earnings management on the financial performance of Nigerian oil and gas firms using the Panel Autoregressive Distributed Lag (PARDL) modeling technique. The research involved 12 years of panel data from 2011 to 2022, focusing on eight firms: Ardova, Coinoil, Eterna, Japaul, MRS, Total, Rakunity, and Seplat. Data on real earnings management was gathered from their annual reports. The dependent variable was net profit after tax, while the independent variables were abnormal cash flow level, abnormal production cost level, and abnormal discretionary expenses. The study analyzed the relationship between real earnings management and the financial performance of Nigerian oil and gas firms. The Pedroni Cointegration showed a higher than average proportion, indicating cointegration. The ECM result confirmed a long-run relationship, with all indicators of real earnings management positively influencing the financial performance of these firms. However, only abnormal cash flow and discretionary expenses had statistically significant effects. The dynamic side revealed no evidence of causality between real earnings management and the financial performance of these firms, indicating that real earnings management is not a long-term predictor of their financial performance.