EFFECT OF CREATIVE ACCOUNTING ON SHAREHOLDERS WEALTH AMONG

LISTED DEPOSITED BANKS IN NIGERIA

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 CHAPTER ONE

INTRODUCTION

1.1 Background to the study

A Finance reporting plays a crucial role in disseminating essential financial information to a

diverse group of stakeholders, which include investors, employees, suppliers, lenders, customers,

the government, and the public. This information pertains to an organization's financial standing,

performance, and shifts in financial status. The purpose of providing such information is to aid in

the decision-making process, which can have a significant impact on the economic outcomes of

the stakeholders. (Balaciu et al., 2009). Therefore, finance reports must relay meaningful intel to

users enabling them incorporate economic choices (Siyanbola et al., 2020). Only until the basic

qualitative qualities of financial statements have been met can the information presented be

useful. In general, financial accounts can be altered using accounting practices, which can

provide either a positive or negative image (Adetoso & Ajiga, 2017). The company's leaders are

frequently under pressure to profit from the stock market while also maintaining a positive share

price value (Bhasin & Shaikh, 2013).

Instead of presenting a true and accurate picture of the financial accounts work with

directors in their capacity as guardians or shareholders to change accounting data. Within the

framework of this research, the concept of creative accounting pertains to the intentional

alteration and embellishment of declared profits, which may serve the preparers' interests by

presenting an outward appearance of the company that appears plausible to external parties,

advancing the managers' financial gains, or achieving particular organizational objectives. (Uwah

& Akpan, 2019).It is done within the bounds of legality and in accordance with accounting

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standards. Bhasin & Shaikh (2013) implied that the act of creative accounting is when financial

figures are purposely altered to align with the views of the company's managers, rather than

reflecting the actual performance or financial state of the company. This manipulation is

achieved through the use of accounting knowledge and discretion, all within the confines of legal

accounting regulations. Therefore, Utilizing imaginative strategies in financial reporting may be

perceived as interfering with the elements of financial statements, resulting in the possibility of

inflating the worth of assets, surplus stockpiles, reduction in expenditures, alterations to the

depreciation procedures, and presenting reserves as a property, etc. (Lau & Ooi, 2016).

The current business climate, competitive terrain, and recent economic downturn have

led the majority of top management authorities to concentrate on how to improve their

company's financial statements and draw investors (Kingdom et al., 2018). Depending on what

the company wants to accomplish at the time, the organization uses inventive accounting

techniques to manipulate the numbers in its financial accounts, either by increasing the numbers

or decreasing them. According to Obodoekwe & Agbo (2020), creative accounting is not

unlawful in and of itself, and it can sometimes benefit investors. Earnings management, for

example, may ensure a consistent dividend policy. On the other hand, using this approach may

be regarded as immoral and ought to be sidestepped since it alters the truth. (Henry, 2021). It

must be evident that there is a delicate boundary between acceptable innovative accounting

practices and fraudulent management tactics. Despite adhering to accounting regulations,

companies still resort to exploiting "loopholes" to boost their critical performance metrics.

(Karim et al., 2016). Creative accounting can bring short-term advantages to a company's

activities, but it can ultimately result in reduced stock prices, financial difficulties, or even

business failure. Additionally, determining common principles of ethical behavior is complex

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because what one culture considers acceptable may be viewed as unacceptable by another

culture.

The extent of shareholders' riches is ascertained by the scale, timing, and danger

associated with the future cash flows that the company generates. Museum (2019) stressed the

creative parts of accounting creation in manipulating accounting statistics and claimed that

creativity is a crucial component of innovative accounting techniques. Firms might be

encouraged to use creative accounting techniques for a variety of purposes as the economic

climate becomes more challenging. Because different businesses utilize creative accounting for

various purposes, participants within the accounting industry might not completely get how it

works.

Hence, there is a requirement to distinguish inventive techniques of accounting,

comprehend their implementation, and examine the impact they exert on the prosperity of

stockholders. (Bhasin & Shaikh, 2013). Since shareholder wealth maximization stands as the

major goal of corporate finance, there is little question about this. Identification of innovative

creative accounting is therefore important, as well as information on their application and the

effects they have on shareholder wealth. The research's goal is to determine whether creative

accounting techniques have an impact on the affluence of shareholders of chosen Nigerian banks

officially registered on the stock market (Adetoso & Ajiga, 2017)

However, there are a limited number of studies in Nigeria that investigate the impact of

utilizing creative accounting practices on the financial prosperity of shareholders in Nigeria. This

research would be limited to few mechanisms of measuring creative accounting which is the

independent variable which includes earnings management, tax avoidance, off balance sheet

finance, although there are other mechanisms of measuring creative accounting practices (Ata

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Ozkaya, 2014).The shareholder wealth, which is the response variable, is represented by the

stock price.

To fill a current gap in the literature on creative accounting as well as shareholders

wealth within Nigeria, this current article investigates the impact of creative accounting to the

wealthy status of shareholders of banks registered on the Nigerians Stock Exchange market.

1.2 Statement of Problem

Ineffective financial reporting has been caused by several allegations of price

manipulation, overstating profits, and fabricating accounts by certain untrustworthy individuals.

The recent string of business failures has been strongly linked to breakdowns in corporate

governance that involve multiple parties, including the management team, board of directors,

auditors, and select investors. (Ezeani, 2010). Financial catastrophes and connections to fraud

have historically harmed the majority of corporate companies. Accounting scandals in recent

years, like those involving Enran, World Com, Parmalat, Tyco, and others, have made

stakeholders lose billions of dollars and tarnished the accounting profession as a result of

financial manipulation. Existing works have been done to access the effect associated to creative

accounting as well as shareholder wealth across the globe but, little (Bankole et al., 2018; Essien

& Udoetise, 2019; Ezuwore & Agbo, 2020) has been done in Nigerian despite the prevalent

corporate scandals. Due to the cultural, economic, and technological differences between Nigeria

and the nations where the research was conducted, generalization is hampered. A study of this

kind is essential, particularly in a nation like Nigeria. However, very little research has been done

on the topic so far, ignoring the gap that hasn't yet been found.

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 Also, a few studies that has been carried out in Nigeria focused on public companies

(Oyadonghan & Igbo, 2014; Bankole et al., 2018, Etim & Akpan, 2019). In turn, this study tends

to focus on the banking sector in Nigeria which looks to cover the gap as it relates to industry

because the banking industry has that space still unfilled. The study will also extend its findings

to the year 2021, the most recent year in which a study has been conducted on the correlation of

inventive accounting and the prosperity of stakeholders in Nigeria. Since this will be the first

study of its kind, the study also closes the time gap left by the period left unexplored by earlier

studies

Numerous research endeavors have been undertaken to address the predicament of creative

accounting. Nonetheless, Joshi & Li (2016) contend that fraudulent conduct is rampant in most

business organizations, leading to significant financial collapse. Despite the widespread adoption

of creative accounting among numerous firms in the country, regulators of the accounting

profession, including the Central Bank of Nigeria, seem to overlook the issue, choosing to focus

on the items that feature in banks' balance sheets (Kure, 2019). Mauwa (2016) notes that this

silence from regulators is alarming, given the adverse effects of creative accounting on

businesses.

While off-balance items receive less attention and concentration from regulators due to their

probabilistic nature, there’s numerous guidelines as well as a circular managing such items in a

manner that makes them compliant within regulatory requirements. It becomes evident when

there are no guidelines or protocols in place to oversee their actions. In recent years, A

discussion has been ongoing regarding creative accounting, a term commonly used to refer to

approved accounting methods that enable companies to present financial outcomes that may not

precisely reflect the true nature of their business operations. (Sanusi, 2014). In Nigeria, no

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research has been done on certain aspects of creative accounting including earnings

management, tax evasion, or off-balance sheet financing.

This leave a gap to be fill in Nigeria economy. The objective of this investigation is to

evaluate how creative accounting influences the shareholders' wealth of banks listed on the

Nigeria Exchange group in this particular setting

1.3 Research Questions

Within the course of the research, the research questions below were developed:

i. What are the effects of earnings management on the stock price of Nigeria deposit

money banks?

ii. To what extent does tax avoidance affects the stock price of Nigeria deposit money

banks?

iii. What are the impacts of off-balance sheet finance on stock prices of Nigeria deposit

money banks?

1.4 Objective of the Study

The broad aim of this study is to analyse the impact of creative accounting on shareholders

wealth of banks listed in Nigeria.

The main aims of the research are to;

i. Aim at examining the impact of earnings manipulation on the stock value of deposit

money banks in Nigeria.

ii. For examining the impact of tax avoidance on the stock price of Nigeria deposit

money banks

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 iii. For discovering the impact of off-balance sheet finance on the stock price of Nigeria

deposit money banks.

1.5 Research Hypotheses

In accordance with the aims of this investigation, the subsequent zero hypotheses were devised.

Hypothesis One

Earnings management has no major impact on the stock price of Nigeria deposit money banks.

Hypothesis Two

There isn’t a major impact of tax avoidance on stock price of Nigeria deposit money banks

Hypothesis Three

Off balance sheet finance has no major impact on the stock price of Nigeria deposit money

banks.

1.6 Significance of the Study

The findings of this research will be useful to policymakers, society at large, and the

body of knowledge in accounting principles. They will also be helpful to business boards of

directors in ensuring that enough information about their operations is accurately disclosed on

financial statements (Academia). Knowing the elements that contribute to creative accounting

methods within an organization will be valuable to stakeholders and investors. Additionally, this

study will inform decision makers and the general public about the imaginative accounting on

the wealth of shareholders of specific listed banks on the Nigerian stock exchange, which will

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help with the design of sound policies, particularly in the banking industry. Findings of this

research will also lay more emphasis on legislative measures the Nigerian government

implemented to raise the caliber of bank financial statements.

Additionally, the general public will receive education, and Nigerian banks and other

institutions' financial statements will once again be trusted by the public. Finally, the research is

anticipated to add up to the content body and serve as a vital tool for academics, students, and

academia's future learning and research

1.7 Scope of the Study

Main focus of the research will be deposit money banks that are listed for trading on an

exchange. It will span ten years, from 2012 to 2021. To maintain policy homogeneity, 2012 was

selected as the base year because it kicked off the start of a new age in financial reporting

following the adoption of IFRS, which also had an impact on the reporting of accounting

creation. The most recent year for which data are available is 2021, thus that was the year that

was selected. The study will employ secondary data, which will be gathered from the banks'

annual financial statements, and the information will be used to undertake analysis. The study's

topic matter includes important aspects on creative accounting. The variables of interest in this

study include stock price as the dependent variable and creative accounting (earnings

management, tax avoidance, and off-balance sheet finance) as the independent variable.

1.8. Operational definition of terms

i. Off balance sheet finance: These are items which are ways of funding liabilities that are not

explicitly acknowledged in the budget in order to keep the debt - equity ratio low and keep a high

bank certification classification.

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ii. Earnings management: Earnings management is a dishonest accounting tactic devised by

management to fabricate inflated revenue and earnings, with the aim of meeting predetermined

earnings projections, satisfying financial market demands, and appeasing analysts' expectations.

iii. Tax Avoidance: Tax avoidance refers to the approach of decreasing the amount of taxes that

a taxpayer is required to pay, by utilizing permissible deductions. This approach is employed by

individuals and businesses, including large corporations, to lessen their tax liability and alleviate

their tax burdens.

iv. Shareholders wealth: The wealth of shareholders is the total wealth endowed upon them by

their investment in a corporation.

V. Creative Accounting: This is a practice often used erroneously create or understand

accounting policies with the intention of abusing the rules and procedures that the accounting

entities have established.

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 CHAPTER TWO

LITERATURE REVIEW

In this part of the dissertation, the review of relevant and related literatures to the topic of

interest will be done. Therefore, in this part of the dissertation, there will be the

conceptualisations of some key works such as the stock price, the creating accounting concept,

the earning management concept, tax avoidance, off balance sheet finance. Also, the empirical

review will be done in addition to the theoretical framework of the study.

2.1. Conceptual Review

This part of the study make conceptualisations and examining what literatures have said and

discussed about the concept of creative accounting, earnings management, stock prices, tax

avoidance, shareholder’s wealth and off-balance sheet finance.

2.1.1 Creative Accounting

Creative accounting techniques involve either creating the balance sheets look more

impressive as well as better monetarily on just one end, or maybe weaker monetarily on another,

dependent on the company's decision. (Gupta & Kumar, 2020). According to Branka Remenaric

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and Ivo Mijoc (2018), the several financial crises that seriously threatened the accounting

profession were caused by creative accounting. They added that the credibility of financial

statements is impacted when inventive accounting techniques are used with blatantly dishonest

motives, and as a result, the decisions made by those who use financial accounts may not be

founded on the truth and fairness of transactions and occurrences. It's due to the manipulation of

accounting rules and standards, which has an impact on the accuracy, reliability, as well as

consistency of these kind of reports. Thus, taking actions primarily on such financial information

could be deceptive. Ababneh and Aga (2019) opined that creative accounting practices are

widely practiced among companies. Experts went on to say that tax avoidance including tax

evasion are indeed the main causes of creative accounting between organizations. Management

may seek to disclose their records in a way that benefits itself in addition to evading taxes but

also avoiding taxes for other motives & objectives. For example, the board of directors might

decide to dispose of the business soon. When a firm is going through a rough patch, such as

declining profits, a probable takeover, or dwindling stakeholder and shareholder optimism, they

do so in order make it appear appealing to prospective investors as well as guarantee a higher

return. They further do this when the management's compensation is closely tied to the firm’s

profitability ,but also finally, when the corporation is on the verge of erring on its credit policies.

According to a paper by Comandaru et al. (2021), creative accounting procedures employ a

variety of techniques. The first way is through off-statement of position financially financing, in

which arrangements are specifically designed to permit the non-recognition of holdings, notably

liabilities for loans. Furthermore, it could be in the shape of excessive dividend policy, in which

revenues are recognized by the corporation even before they have been generated. Additionally,

creative accounting can be done by unfairly changing accounting standards or accounting

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estimations. For instance, it is possible to lengthen the economic lifetimes of non-current

investments in order to lower overall depreciation costs as well as increase profitability, or the

opposite. Finally, by putting false investments as well as expenditures in the records but

extending these sums across time, management may start to inflate the earnings. The term for

this is profit smoothing. (Cugova & Cug, 2020).

Creative accounting and earnings management according to Egwurube (2021) are terms

refers to accounting procedures that must adhere towards the rules but not necessarily the intent

of generally accepted accounting principles. These are distinguished by excessive complexity as

well as the employment of creative ways to describe earnings, investments, or liabilities, with the

intention of swaying readers' views in the writers' favor. Occasionally, the adjectives

"progressive" or "radical" are employed (Kenfeljaet al., 2019). Financial appraisal, conflict

elements, as well as incidents are all a part of creative accounting, commonly referred to as

aggressive accounting. Because of this adaptability, there is space for deception, exploitation,

even distortion. Therefore, accountants modify the numbers recorded in a business's statements

using their understanding of accounting standards. (Saleh, et al., 2021).

2.1.2 Earnings Management

According to Santana et al. (2020), In order to satisfy profits predictions, financial market

assumptions, as well as analyst perceptions, administration uses a process known as "earnings

management," which is blatant financial fraud. Management accounting degrades financial

reporting's integrity with a detrimental influence on the reliability of income (Baskaran et al.,

2020). Hence, the financial reporting should adhere to an acceptable collection of guidelines in

order to deliver fair, timely, as well as credible accounting records (Baskaran et al., 2020). It can

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be nearly impossible to stop the conniving nature of the financial summary accountants who

attempt to alter the choices of accounting information in best interest of their corporates, despite

the presence of sturdy global reporting established standards to steer financial accounting

functions (Gandhi, 2021). That's also due to the Generally Accepted Accounting Principles'

(GAAP) inherent openness, constraints, but also inconsistencies, that have now allowed

administrators the freedom to make accounting decisions that would influence revenue numbers.

(Gandhi, 2021).

In profits management, aggressive strategies are frequently used to artificially enhance (or

decrease) revenue, profit, or earnings per share figures. An instance of fraud is aggressive

earnings management, which is distinct from just a report failure (Li, 2019). To reach their

intended goal or to meet estimates made by financial analysis, administration that wants to

display earnings at a specific stage or follows a particular rhythm looks for gaps in financial

reporting rules that will permit them to change the statistics as much as is practical (Beyer et al.,

2019). Since these modifications go beyond what is considered to be good accounting practice,

they constitute dishonest financial reporting.

Investors frequently condemn managers, according to Lo's (2008) assertion, when an institution's

earnings expectations aren't met. The share value of companies whose profit fall short of

expectations tends to drop, hence some leadership employ various earnings manipulation

strategies to drive asset values upward (Lo, 2008). Earnings management, according to

Almarayeh, Aibar-Guzmán, and Abdullatif (2020), is a planned action carried out inside GAAP

to produce targeted earnings outcomes. Critics contend that while GAAP is a set of rules, there is

considerable freedom for interpretation & implementation, necessitating a great deal of

subjectivity in the determination of accrual-based profitability (Almarayeh, Aibar-Guzmán &

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Abdullatif, 2020). Company earnings serve as the benchmark for economic allocating capital as

well as a number of socioeconomic policy making (Huguet & Ganda, 2016). He contends that

traders extrapolate a performance of a company but also price from its financial reports, making

adjustments to investment selections in response to revised forecasts, and frequently using the

sum of company profits to estimate the entire stock marketplace (Reyna, 2018). Poor performing

companies could be tempted to inflate earnings through dubious accounting methods in order to

satisfy earnings estimates; if these practices go unnoticed, they could deceive but also confuse

investors, lenders, as well as other readers of income accounts. So, when company uses

discretion in financial reporting as well as transaction architecture to change financial reports to

make results look higher than they really are, that is when earnings manipulation happens.

According to Ganda and Huguet (2021), one of the reasons businesses control or distort earnings

is to match consumer expectations or analyst estimates. Experts contend that in comparison to

businesses that do not fulfill expectations for earnings, those that do so benefit from greater stock

prices as well as earnings per share. (Xue & Hong, 2016).

The management of earnings could sometimes be viewed as a negative activity with the

propensity to harm a company image, prestige, even stock values (Srivastava, 2019).

Additionally, this suggests that businesses frequently actively manipulate their revenues to draw

in investments, appease shareholders, as well as pay lenders. In a research, Lo, Ramos, with

Rogo (2017) assert that earnings management, in any form, pertains to the manipulation of actual

facts including financial data that undermines investors' faith in the reporting firms' financial

statements. The reported earnings are distorted by this technique, that negatively impacts their

actual results thus, in turn, their capacity to provide returns (Lo, Ramos & Rogo, 2017). To

improve earnings as well as share value and therefore entice new investors, organizations may

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use earnings management practices as a significant driving force (El Diri, Lambrinoudakis and

Alhadab, 2020). Nevertheless, the accrued elements of profit typically go up as a consequence of

this technique. Thus, declared earnings as well as stock market value could rise without a

matching rise in the firms' dividend payments. (Khanh & Thu, 2019).

2.1.3 Tax Avoidance

The view of taxes by the government as well as businesses has been a topic of global discussion.

Tax evasion is accepted as a legitimate strategy to be used for the firm 's advantage (Fisher,

2014). This procedure will give the business the chance to pay less tax than usual for the current

fiscal year. The idea is acceptable in comparison to the tax evasion approach, which is used to

avoid paying taxes that aren't legally due. One of the reasons Kenyan businesses use creative

accounting is to pay less tax. Businesses set up, manage, and plan their finances to pay the least

amount of tax while still abiding by the law. Different legal strategies could be used to protect

businesses' liabilities and avoid paying a certain amount of tax. Companies take steps to avoid

paying taxes by hiring tax consultants to offer expert advice, increasing the amount of tax-

deductible expenses, and purchasing life insurance. These efforts are commonly perceived as a

means to enhance a company's financial performance while also decreasing their tax burden.

Conversely, there are two justifications for a company opting to utilize appropriate employment

agreements to lower their tax liability. The company needs to verify the amount of provisions or

compensations that can offset particular tax responsibilities. To ensure consistency in their

approach, the company's tax reduction efforts should align with their internal controls and

standard operating procedures. Some firms have been found to utilize creative accounting

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methods to minimize their tax obligations (Kamau et al., 2012). Companies may decrease their

income and increase their expenses to avoid paying taxes.

2.1.4 Off Balance Sheet Finance

These are items which are ways of funding liabilities that are not explicitly acknowledged

inside the budget in order to keep the debt - equity ratio low and keep a high bank certification

classification (Huang, 2018; Ablaza, Liu and Llado, 2021). Although they are characterised as

contractual obligations, they significantly influence the total worth of the banks even though they

do not directly entail financial obligations for the banks (Ablaza, Liu and Llado, 2021). Due to

financial liberalisation and technological advancement, off-balance items have become more

significant for banks globally in recent years (Zhang and Liu, 2020).

This increased the competitive pressures the banks faced, which in turn caused the interest

margins they charged for conventional banking products, like all types of loans, to decline.

Incidental traditional commitments arising from issuance of letters of guarantee for loans, to

work performance or to documentary credits and other things in addition to the obligations

arising from dealing in derivatives contracts are off balance sheet finance (Vu, 2003).

Furthermore, Richard (2001) defined off-balance items as the financial activities that provide

financing sources to the enterprise without stating the financial obligations in the financial

statements. However Goodacre (2003) defined them as potential assets and liabilities which

effect in future budgeting, as well as they effect the liquidity, profitability and security of the

bank. It is a promise or commitment to grant a credit, which is in turn forms an emergency

commitment does not appear in the budget of the Bank, and for this reason it is referred to as off-

balance items. Basel Committee on banking supervision also defined off-balance items as

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financial contracts in an asset value or a particular indicator, where it is allowed to transfer risks

to another party (Lander and Auger, 2008). From all the aforementioned interpretations, it can be

shown that there is broad consensus among scholars about the main traits of off-balance items,

such as their disappearance in the financial statements but possible existence in the explanations

that go along with those statements. These things involve revenues while also posing a lot of

risks. Kraft (2015) emphasised that these things are one of the inventive accounting techniques

that can be employed to deceive financial statement users.

2.1.5 Shareholders Wealth

According to the purpose of maximising shareholder wealth, management should work to

maximise the current value of anticipated future returns to the company's owners, or

shareholders. Periodic dividend payments or the revenues from the sale of the common stock are

two examples of these returns (Ewelt-Knauer, Knauer and Lachmann, 2015). The value of a

future payment or stream of payments today, when assessed using the appropriate discount rate,

is known as the present value (Chuang, 2017). The discount rate considers the potential returns

from different investment options over a particular (future) time horizon (Rao and Bharadwaj,

2008). Investors place less value on benefits that take longer to materialise, such as cash

dividends or increases in the price of a company's stock (Rao and Bharadwaj, 2008).

Furthermore, Brandon-Jones et al. (2017) reported that the greater the risk associated with

receiving a future benefit, the lower the value investors place on that benefit. Stock prices, the

measure of shareholder wealth, reflect the magnitude, timing, and risk associated with future

benefits expected to be received by stockholders (Brandon-Jones et al., 2017). Shareholder

wealth is measured by the market value of the shareholders’ common stock holdings. Market

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value is defined as the price at which the stock trades in the market place, such as on the Nigeria

Stock Exchange (Thirumagal and Vasantha, 2018). Thus, total shareholder wealth equals the

number of shares outstanding times the market price per share. The objective of shareholder

wealth maximization has a number of distinct advantages (Alora & Barua, 2021).

First, this objective explicitly considers the timing and the risk of the benefits expected to be

received from stock ownership. Similarly, managers must consider the elements of timing and

risk as they make important financial decisions, such as capital expenditures (Denis, 2016). In

this way, managers can make decisions that will contribute to increasing shareholder wealth

(Denis, 2016). It is conceptually possible to determine whether a particular financial decision is

consistent with this objective. If a decision made by a firm has the effect of increasing the market

price of the firm’s stock, it is a good decision (Lin et al., 2020). If it appears that an action will

not achieve this result, the action should not be taken (at least not voluntarily). Farah and Li

(2022) in a study reported that shareholder wealth maximization is an impersonal objective.

Stockholders who object to a firm’s policies are free to sell their shares under more favourable

terms (that is, at a higher price) than are available under any other strategy and invest their funds

elsewhere. Therefore, if an investor has a consumption pattern or risk preference that is not

accommodated by the investment, financing, and dividend decisions of that firm, the investor

will be able to sell his or her shares in that firm at the best price, and purchase shares in

companies that more closely meet the investor’s needs (Farrukh et al., 2017). For these reasons,

the shareholder wealth maximization objective is the primary goal in financial management

(Farrukh et al., 2017). However, concerns for the social responsibilities of business, the existence

of other objectives pursued by some managers, and problems that arise from agency relationships

may cause some departures from pure wealth maximizing behaviour by owners and managers

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(Teschner and Paul, 2021). Nevertheless, the shareholder wealth maximization goal provides the

standard against which actual decisions can be judged and, as such, is the objective assumed in

financial management analysis (Teschner and Paul, 2021).

2.1.6 Stock Price

According to Badruzaman (2020), stock value is the amount an individual is prepared to

pay right now for shares of a company. The stock market affects a nation's economy significantly

since it determines a firm's valuation and its ability to borrow money in addition to serving as a

direct source of funding (Nguyen, Vu and Doan, 2020). It offers a pathway for capital formation

and investment, and it can serve as a gauge or forecaster of the state of the economy as a whole.

It serves as a liaison between savers and businesses looking for additional capital for business

expansion, which promotes industrialization and the creation of job opportunities that raise

societal standards of living (Luo and Zhang, 2020). It provides a platform to individuals,

governments, firms and organizations to trade and invest in savings through the purchase of

shares (Andreou, Andreou and Lambertides, 2021).

A stock market is very crucial to sustainable economic growth as it can assure the flow of

resources to the most productive investment opportunities. So, as an important institution of a

country, stock market is of a great concern to investors, stakeholders and the government. The

market price of a share is a key factor that influences investment decision of stock market

investors. The share price is one of the most important indicators available to the investors for

their decision to invest in or not a particular share. . The stock price in the market is not static

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rather it changes every day. The most obvious factors that influence are demand and supply

factors. i.e, when demand is higher than supply, stock prices go up and when supply is higher

than demand, stock prices decreases (Ding, 2021). The price of any commodity is affected by

both micro-economic and macro-economic factors. In the securities market, whether the primary

or the secondary, stock price can be significantly influenced by a number of micro

environmental factors including dividend per share, book value (asset value) of the firm,

earnings per share, price earnings ratio and dividend cover etc. (Ghazo, Abu-Lila and Ajlouni,

2021). Eldomiaty et al. (2020) reported that macro-economic factors include politics, general

economic conditions - i.e. how the economy is performing, government regulations, etc. The

company's performance, as well as its performance relative to the industry and other players in

the industry, may also have an impact on other variables like demand and supply conditions.

Once more, some eminent authors contend that changes in fundamental variables important for

share valuation, such as Dividend per share, Earnings per share, dividend pay-out ratio and firm

size, are related to changes in share prices (Badruzaman, 2020; Sholichah et al., 2021; Zaman et

al., 2021).

2.2 Theoretical Review

This section or subsection of the research will be dealing with the theoretical review of the

study. In this part, already established theories in the topic of interest will be conceptualized as

well as applied to the on-going study. Hence, the theoretical framework for this study will be the

information asymmetry theory as well as the legitimacy theory.

2.2.1 The Information Asymmetry Theory

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 According to Chod and Lyandres (2018) the idea holds that there is a tendency for

information asymmetry, with managers having better knowledge of the organization's financial

situation than shareholders and other users. There is therefore, a conflict between the advantaged

managers and the stakeholders due to the information asymmetry (Chod and Lyandres, 2018). It

is presumed that accounting disclosures contain information that is very important and relevant

to the stakeholders in terms of signalling (Yazdanfar, 2012). As a result, the accountant is always

required to present a genuine and fair assessment of the transactions in the financial statements

(Yazdanfar, 2012). However, Dawson, Watson and Boudreau (2010) asserted that the managers

as a result of the positions they occupy and privileged information tend to take advantage or

streamline the activities of the organization into a course that is suitable to them. They went

further to state that the efficiency of the secondary trading of debt securities would be increased

by decreasing information asymmetry regarding a borrower through conservative reporting

(Dawson, Watson and Boudreau, 2010). Omar, Sell and Rover (2017) and Chod and Lyandres

(2021) opined that conservatism and accrual accounting can be tolls of creative accounting as

they have direct effect on the financial statements since it involves a doubtful situation in the

accounting field.

2.2.2 Legitimacy Theory

According to the legitimacy hypothesis, businesses work hard to carry out operations that

adhere to the laws of the environments in which they work. It suggests a situation in which an

entity acts in accordance with societal norms (Sari and Prihandini, 2019; Silva, 2021). Legal

businesses must abide by social norms. Conflicts arise when actions don't follow expectations for

the setting in which they take place (Vitolla and Rubino, 2017). According to the notion, a social

22
contract connects a corporation with a domain or society's functions (Vitolla and Rubino, 2017)..

These are the social demands placed on business operations. The company should adhere to

social norms because disobeying them could result in criticism and punishment (Vitolla and

Rubino, 2017). According to Guthrie and Parker (1989), over a certain time frame, rules are

dynamic and fluid. Therefore, in order for a firm to maintain its legitimacy, it must both adapt to

these changes and meet the new demands of the society in which it operates. Consequently,

firms’ weather additional social responsibility costs such as employees’ health, safety, and

environment hazards (Dube and Maroun, 2017). Additionally, society’s expectations regulate

firm activities through certain requirement at predetermined periods (Dube and Maroun, 2017).

In summary, legitimacy theory examines how firms manage relationships with diverse

stakeholders essential to its existence as going concern. The ways in which firm can legitimatize

its activities are described as follows; By adjusting objectives, methods, and output, as well as

adjusting activities to reflect modern conceptions of legitimacy; Information is used by the

company to re-evaluate social legitimacy and guarantee compliance with modern procedures, its

values, and production.

Patten (2020) asserted that legitimacy is achieved through provision of adequate information in

accounts and other public disclosure forum such as firm’s website. Hence, accounting provide

framework to legitimize the efforts and accomplishments of the entity (Pittroff, 2014). Reporting

is key for information dissemination to interested parties on social responsibility activities or

actions embarked upon by entity (Alam, 2021). It can support or counter negative news that is

already publicly available (Janang, Joseph and Said, 2020). Managers can use Voluntary

disclosures reports to influence stakeholders and show that firms operations are legitimate. This

23
is accomplished using Voluntary disclosures of cost of social responsibility actions and

environmental activities (Islam, Kokubu and Nishitani, 2021).

The Information Asymmetry Theory is the foundation of this investigation. This is due to

the fact that business analysts and economists base their decisions on the data included in an

entity’s financial statements. The shareholders can determine the status of their investments and,

more significantly, whether the company is successful thanks to the data in the financial

statements. However, management occasionally takes use of the flexibility in the accounting

standards to change the reported earnings in order to accomplish their goal. This is due to

information asymmetry, as the managers have more knowledge about the organization they

oversee than the shareholders, the company's owners.

2.3 Empirical Review of Literatures

2.3.1 Creative Accounting and Shareholders wealth

Jones (2011) revealed that the creative accounting of firms listed on the Istanbul Stock

Exchange, for the five-year period 2006-2010. He used logic analysis and found that very

large sized firms were less likely to have smoothing behaviour than small-sized firms, and firms

in service industry were less likely to have smoothing behaviour than firms in financial industry.

Additionally, Sajid, Nazir, Iqbal and Bilal (2012), examined the influence of dividend policy on

shareholder wealth by taking a sample of 75 companies from 2005-2010. By performing a

multiple regression analysis, they found that the difference between the book value of equity and

the average market is highly significant among companies paying dividend rather than non-

paying companies. They further stated that the companies paying dividend regularly led to the

shareholder wealth maximization.

24
 Idris et al. (2012), using survey method, they investigated the practice of creative

accounting, its nature, techniques, and prevention. The findings of the study showed that the

current GAAP in Nigeria created a gap that can permit the practice of creative accounting, and

also revealed that the International Financial Reporting Standard will go a long way to reduce the

practice, since it covers more areas that the former practice. They concluded that one of the best

ways to prevent the practice of creative accounting is to enforce both preventive as well as strong

enough punitive measures on those that engage in the practice. Also, Efiok and Eton (2012) tried

to explore the environment of creative accounting in the Nigeria, focusing on the motivations

and constraints on such practices, by examining the accounting practices of two companies

which issued creative financing instruments. They found out that creative accounting is

influenced by two key motivators: stakeholder contracts and performance indicators. Moreover,

analysis showed that management took advantage of gaps in accounting standards to present a

biased picture of financial performance

Sanusi (2014) investigated why, how, to what extent, and in what direction creative

accounting was practiced in banks. The results of the study indicated that creative accounting

was practiced in banks frequently, and to a considerable extent mainly with the blessing of the

law. The findings also suggested that large firms augmented profits for external financing, while

small firms understated profits to reduce income taxes.

Sanusi and Izedonmi (2014) focused on the scope, incentive factors, limits, practice

methods and results of creative accounting. In order to determine the creative accounting

practices of firms they used accruals method and used modified Jones model by adding country

specific variables. One of the important findings of his study was that the motivation of creative

accounting practices by using accruals diminished as the size of the firm increased. They also

25
revealed that as the degree of financial leverage increased the motivation of using creative

accounting practices also increased.

Munene (2015) investigated the effect of creative accounting on shareholders’ wealth in

listed companies in Kenya This study used a diverse research design; cross-sectional and

explanatory research designs were adopted for primary data and time-series for collecting

secondary data. This study therefore adopted mixed research design to ensure that the data

collected and analyzed addresses the objectives of the study. The study comprised 64 companies

listed on the NSE. The target population was comprised of all listed companies in Kenya. The

researcher found that the independent variables explain 64.3% of the variance in the shareholders

wealth. It’s very clear that these independent variables influence to a large extent the growth of

shareholders wealth

Lau and Ooi (2016) in a study conducted a study on fraudulent financial reporting, focusing

on the creative accounting methods used and the motives for such actions. The research results

showed that the most commonly used method of creative accounting was the overestimation of

revenues through recognition of fictitious revenues from product sales to bogus customers. The

main motive for this is increasing the company’s capital, not settling debts and maintaining the

level of capital. One of the key conclusions of the research is that auditors should review the

effectiveness of their analytical and material procedures since there is a significant number of

cases of creative or fraudulent accounting that remain undetected by the audit process. Also, the

bodies that set accounting rules should reconsider whether managers have too much discretion in

the application of accounting standards. In other words, the question arises whether they use this

discretion to provide useful information to the decision makers or to obtain personal gain. It

turned out that in most accounting scandals, unethical decisions of managers have led to

26
significant adverse consequences for decision-makers and society as a whole. Therefore,

managers should re-examine their own responsibilities and role in financial reporting.

Gathiga (2019) focused on the effects of creative accounting on shareholders wealth. The

study use both primary and secondary data, descriptive statistics used to analyze data and also

tables and figures which will be used for data representation for better interpretation and

understanding. The target population is 65 public listed companies in the Nairobi stock exchange

market. The research found out that many organizations lacked this predictability meaning that

the dividends that the shareholders would receive are correct and could correspond to the

profitability of the organization.

Essien (2019) examined the effect of Creative Accounting on Shareholders’ Wealth in

Money Deposit Banks Listed Companies in Nigeria. The quantitative study adopted a survey

research design with a target population of 134 staff from ten (10) selected listed companies.

Both primary and secondary data were used in this study. For primary data, the data collection

instrument was questionnaires while the secondary data was derived from financial reports and

related literature. The study findings revealed that income smoothing, tax avoidance and changes

in accounting policies have effect on the shareholders wealth in the listed companies in Nigeria.

Ebenezer (2022) examines the effect of creative accounting practices on the shareholders

wealth. 90 firm-year observations of ten (10) consumer goods companies listed on the Nigerian

Stock Exchange (NSE). Ex post facto research design was adopted using dataset for the period

2011–2019 which were collated from the annual reports and financial statements of the listed

consumer goods companies. Four hypotheses were proposed and tested using pooled panel data

regression. Findings revealed that frequent changes in inventory valuation method and assets

27
valuation methods respectively have significant effect on shareholders wealth, while frequent

changes in depreciation methods and liabilities valuation methods do not significantly affect

shareholders’ wealth.

2.3.2 Earnings Management and Shareholders Wealth

Gunny (2010) has examined the future operating performance of firms that use earnings

management to just meet earnings benchmarks. After controlling for size, performance, growth

opportunities, and industry, she found that earnings management practices were positively

associated with firms just meeting earnings benchmarks. In addition, the findings of the study

revealed that firms engaging in earnings management to just meet earnings benchmarks had

relatively better subsequent performance than firms that did not engage in earnings management

and missed or just met the benchmarks. As a result, she concluded that engaging in earnings

management was not opportunistic, but consistent with the firm attaining current-period benefits.

In Jordan, Alzoubi (2016) analyses the connection between company management and

earnings management in Jordan. He arrived to the conclusion that ownership structure has a

significant influence on earnings management. Thus, managerial ownership, institutional

ownership, shareholders, as well as family and foreign ownership affect the quality of financial

reporting, because they greatly reduce the ability to manage earnings.

Adeyeye (2018) examined the impact of creative accounting techniques on firm financial

statement. Expost facto research design was adopted. Data were collected from Nigeria Security

and Exchange Commission on listed deposit money banks in Nigeria from 2008-2018.

Descriptive analysis and ordinary least square were adopted for analysis. Findings from the

analysis revealed earnings management and tax avoidance are positively and insignificantly

28
related to return on asset; Loans and advances is positively and insignificantly related to its

returns on assets while Total deposit liabilities is positively and insignificantly related to return

on assets

Abasiama, et al., (2019) examine the effect of earnings management on shareholder’s

wealth maximization of banks listed on the Nigeria Stock Exchange. The data used in this study

was obtained from the annual reports of 10 quoted financial banks on the Nigerian Stock

Exchange which was sampled using the purposive sampling technique from the population of 15

banks. The study covered the period of eight years (2010- 2017). A model was specified and

descriptive statistics, correlation analysis and regression analysis were carried. The study found

out that earnings management variables; sales growth index has a positive insignificant

relationship with market value added, growth index has a positive insignificant relationship with

market value added.

Adebisi (2019) examined on the effects of creative accounting on shareholders wealth.

The study use both primary and secondary data, descriptive statistics used to analyze data and

also tables and figures which will be used for data representation for better interpretation and

understanding. The target population is 65 public listed companies in the Nairobi stock exchange

market. The research found out that many organizations lacked this predictability meaning that

the dividends that the shareholders would receive are correct and could correspond to the

profitability of the organization.

Imo (2020) examined the relationship between creative accounting practices and financial

performance of food and beverage companies in Nigeria. The study adopted survey research

design. The population of the study comprised twenty food and beverage companies in Nigeria

29
that are listed on the Nigerian Stock Exchange as at December 2020. Simple random sampling

was used to select the respondents. Structured questionnaire was the data collection instrument

used. The results of the study showed that: aggressive earnings management has a positive and

significant relationship with return on asset, aggressive earnings management has a positive and

significant relationship with return on equity, income smoothing has a positive and significant

relationship with return on asset.

2.3.3 Tax Avoidance and Shareholders Wealth

Mosota (2014) investigates the effect of tax avoidance on the financial performance of

firms listed in the Nairobi Stock Exchange (NSE). Using a descriptive research design, data on

size, institutional shareholding, government shareholding, age and intangible asset were

collected for the sixty one (61) listed firms in the Nairobi Stock Exchange (NSE). His result

reveals a significant positive impact of tax avoidance on the financial performance of the

companies. Size, age and intangible assets were found to have a positive effect on financial

performance, while leverage had a negative impact on the financial performance of sampled

firms. He recommends that firms should be aggressive in tax avoidance in order to improve

profitability

Sanusi and Izedonmi (2014) investigated why, how, to what extent, and in what direction

creative accounting was practiced in banks. The results of the study indicated that creative

accounting was practiced in banks frequently, and to a considerable extent mainly with the

30
blessing of the law. The findings also suggested that large firms augmented profits for external

financing, while small firms understated profits to reduce income taxes.

Robert (2018) examined the impact of creative accounting techniques on firm financial

statement. Expost facto research design was adopted. Data were collected from Nigeria Security

and Exchange Commission on listed deposit money banks in Nigeria from 2008-2018.

Descriptive analysis and ordinary least square were adopted for analysis. Findings from the

analysis revealed earnings management and tax avoidance are positively and insignificantly

related to return on asset; Loans and advances is positively and insignificantly related to its

returns on assets while Total deposit liabilities is positively and insignificantly related to return

on assets

Essien (2019) examined the effect of Creative Accounting on Shareholders’ Wealth in

Money Deposit Banks Listed Companies in Nigeria. The quantitative study adopted a survey

research design with a target population of 134 staff from ten (10) selected listed companies.

Both primary and secondary data were used in this study. For primary data, the data collection

instrument was questionnaires while the secondary data was derived from financial reports and

related literature. The study findings revealed that income smoothing, tax avoidance and changes

in accounting policies have effect on the shareholders wealth in the listed companies in Nigeria.

Ukolabi (2020) examined the relationship between creative accounting practices and

financial performance of food and beverage companies in Nigeria. The study adopted survey

research design. The population of the study comprised twenty food and beverage companies in

Nigeria that are listed on the Nigerian Stock Exchange as at December 2020. Simple random

sampling was used to select the respondents. Structured questionnaire was the data collection

31
instrument used. The results of the study showed that: aggressive Tax avoidance has a positive

and significant relationship with return on asset, aggressive earnings management has a positive

and significant relationship with return on equity, income smoothing has a positive and

significant relationship with return on asset

Mazurina et al., (2020) examine the relationship of creative accounting practices (proxied

by off-balance sheet finance and tax avoidance) and the impact of share price of Malaysian

public listed companies. Off-balance sheet finance and tax avoidance are some of the important

elements being discussed together with creative accounting practices and share price. Secondary

data was collected from data stream and from the information disclosed in the website of the

sampled public listed companies. The result indicates that off-balance sheet finance does

influence the financial performance of Malaysian public listed companies. The result of this

study could benefit the policy maker in order to responsively react on any issues and provides

specific guideline for the companies in applying certain judgment by referring to the accounting

standard.

Oluwamayowa et al., (2022) examines the effect of creative accounting practices on the

shareholders wealth. 90 firm-year observations of ten (10) consumer goods companies listed on

the Nigerian Stock Exchange (NSE). Ex post facto research design was adopted using dataset for

the period 2011–2019 which were collated from the annual reports and financial statements of

the listed consumer goods companies. Four hypotheses were proposed and tested using pooled

panel data regression. Findings revealed that frequent changes in inventory valuation method and

assets valuation methods respectively have significant effect on shareholders wealth, while

frequent changes in depreciation methods and liabilities valuation methods do not significantly

affect shareholders’ wealth.

32
 Rakan (2022) studied the impact of creative accounting on financial statements in

Palestine. This study adopted a descriptive design of the ex-post facto type, with a sample of 100

auditors’ and academics’ perspectives. Questionnaires were sent to a random sample of

accounting instructors and auditors in Palestine. The result showed that accountants and

academics evaluated the impact of advanced accounting approaches on the reliability of financial

reporting to improve its credibility.

2.3.4 Off Balance Sheet Finance and Shareholders Wealth

Calmes and Theoret (2009) aimed to test the impact of off-balance activities on the budget

between the returns and risks of banks, through a sample of eight banks in Canada during the

period 1988-2007. The outputs of the study showed that balance between the returns of the bank

shares and their risks showed a structural change in 1997. It also found that during the period

(1997-2007) the non-interest income resulting from the off-balance activities has no any negative

impact on the returns of the bank shares, while during the period (1988-1996) the volatility in

stock returns had any significant impact on the returns of the banks, risk premium, or the pricing

of risks associated with off-balance activities risks.

Mumuni (2015) investigated the effect of creative accounting on shareholders’ wealth in

listed companies in Kenya This study used a diverse research design; cross-sectional and

explanatory research designs were adopted for primary data and time-series for collecting

secondary data. This study therefore adopted mixed research design to ensure that the data

collected and analyzed addresses the objectives of the study. The study comprised 64 companies

listed on the NSE. The target population was comprised of all listed companies in Kenya. The

33
researcher found that the independent variables explain 64.3% of the variance in the shareholders

wealth. It’s very clear that these independent variables influence to a large extent the growth of

shareholders wealth

Godsday and Emmanuel (2016) examined international financial reporting standards

(IFRSs) as a way of taming creative accounting as well as factors that trigger unethical

accounting practices in Nigeria. The paper utilized structured questionnaires administered to 120

professionals (auditors, investors, stockbrokers). The Pearson Product Moment Correlation

statistical tool was used in analyzing the field data. The study found that IFRSs can be used to

tame creative accounting.

Bankole, et al., (2018) study was designed to establish the effect of creative accounting on

shareholders’ wealth. The study reviewed the theories and techniques of creative accounting as

well as the determinants of shareholders wealth. Empirical studies on creative accounting were

reviewed. It found that frequent manipulation of ageing schedule for the purpose of determining

bad and doubtful debts provision had no significant effects on shareholders wealth.

Mazurina et al., (2020) examine the relationship of creative accounting practices (proxied

by off-balance sheet finance and tax avoidance) and the impact of share price of Malaysian

public listed companies. Off-balance sheet finance and tax avoidance are some of the important

elements being discussed together with creative accounting practices and share price. Secondary

data was collected from data stream and from the information disclosed in the website of the

sampled public listed companies. The result indicates that off-balance sheet finance does

influence the financial performance of Malaysian public listed companies. The result of this

study could benefit the policy maker in order to responsively react on any issues and provides

34
specific guideline for the companies in applying certain judgment by referring to the accounting

standard.

Egolum and Onodi (2021) examined the effect of creative accounting practice on financial

reporting in Nigerian deposit money bank. Survey research design was adopted. Data were

obtained from questionnaires and analyzed with five-point likert’s scale and the three hypotheses

formulated were tested using t-test statistical tool with aid of SPSS statistical package version

20.0. The study found that a well-designed framework of accounting regulation curbs creative

accounting practices in corporate financial reporting and contributed to the bank distress in

Nigeria

Raed and Rakan (2022) studied the impact of creative accounting on financial statements in

Palestine. This study adopted a descriptive design of the ex-post facto type, with a sample of 100

auditors’ and academics’ perspectives. Questionnaires were sent to a random sample of

accounting instructors and auditors in Palestine. The result showed that accountants and

academics evaluated the impact of advanced accounting approaches on the reliability of financial

reporting to improve its credibility.

2.4 Gap in Literature

Existing studies have been done to examine the effect between creative accounting and

shareholder wealth across the globe but, little (Bankole et al., 2018; Essien & Udoetise, 2019;

Ezuwore & Agbo, 2020) has been done in Nigerian despite the prevalent corporate scandals.

This affects generalization due to cultural, economic and technological disparity between

countries the research was conducted and the Nigerian setting. A study of this nature is

35
paramount especially in a country like Nigeria but meanwhile, very little study has focused on

the subject matter, ignoring the gap yet uncovered.

Also, a few studies that has been carried out in Nigeria focused on public companies

(Oyadonghan & Igbo, 2014; Bankole et al., 2018, Etim & Akpan, 2019). In turn, this study tends

to focus on the banking sector in Nigeria which looks to cover the gap as it relates to industry

because the banking industry has that space still unfilled. The study will as well make its finding

to the most recent year 2021 in which no study has researched the relationship creative

accounting and shareholders wealth up to date in Nigeria as this will be the first, therefore, the

study also covers the time gap, by closing the period uncovered in previous studies.

36
2.5 Conceptual Framework

The conceptual framework shows the relationship between the independent and

dependent variables below

CREATIVE ACCOUNTING
Independent variable

SHAREHOLDERS WEALTH
Dependent variable
Earnings Management

Stock Price
TAX AVOIDANCE

TAX AVOIDANCE

37
S/N AUTHO COU TOPIC METHODOLOGY FINDINGS GAP
R’S NTR OBJECTIVE
NAME Y
& YEAR
1 Gathiga Keny This study is The study use both The research found The study was
(2019) a focused on the primary and secondary out that many limited to
effects of data, descriptive organizations three (3) years
creative statistics used to lacked this period. More
accounting on analyze data and also predictability years can be
shareholders tables and figures meaning that the covered to
wealth which will be used for dividends that the validate
data representation for shareholders would findings.
better interpretation receive are correct
and understanding. and could
The target population correspond to the
is 65 public listed profitability of the
companies in the organization.
Nairobi stock
exchange market.
2 Godsday Niger this paper The paper utilized The study found The study is
and ia examined structured that IFRSs can be quite recent
Emmanu international questionnaires used to tame and relevant
el (2016) financial administered to 120 creative accounting. but has
reporting professionals limited
standards (auditors, investors, empirical
(IFRSs) as a stockbrokers). The reviews
way of taming Pearson Product
creative Moment Correlation
accounting as statistical tool was
well as factors used in analyzing the
that trigger field data
unethical
accounting
practices in
Nigeria.
3 Oluwama Niger This study 90 firm-year Findings revealed More recent
yowa, ia examines the observations of ten that frequent studies are
Gbadeges effect of (10) consumer goods changes in needed to be
in and creative companies listed on inventory valuation carried out in
Ebenezer accounting the Nigerian Stock method and assets the same
(2022) practices on Exchange (NSE). Ex valuation methods location as the
the post facto research respectively have study seems
shareholders design was adopted significant effect on to be going
wealth using dataset for the shareholders out of date to
period 2011–2019 wealth, while validate
which were collated frequent changes in findings.

38
 from the annual depreciation
reports and financial methods and
statements of the listed liabilities valuation
consumer goods methods do not
companies. Four significantly affect
hypotheses were shareholders’
proposed and tested wealth.
using pooled panel
data regression.
4 Adeyeye Niger This study Expost facto research Findings from the More recent
(2018) ia empirically design was adopted. analysis revealed studies on the
examined the Data were collected asset structure and same topic is
impact of from Nigeria Security equity capital are needed to be
creative and Exchange negatively and carried out in
accounting Commission on listed insignificantly the same
techniques on deposit money banks related to return on location as the
firm financial in Nigeria from 2008- asset; Loans and study seems
statement 2018. Descriptive advances is to be going
analysis and ordinary positively and out of date to
least square were insignificantly validate
adopted for analysis. related to its returns findings.
on assets while
Total deposit
liabilities is
positively and
insignificantly
related to return on
assets
5 Egolum Niger This study Survey research The study found Result of the
and ia examined the design was adopted. that a well-designed study as at the
Onodi effect of Data were obtained framework of time of
(2021) creative from questionnaires accounting publication is
accounting and analyzed with regulation curbs not timely as
practice on five-point likert’s creative accounting the study was
financial scale and the three practices in conducted to
reporting in hypotheses formulated corporate financial 2016 but
Nigerian were tested using t-test reporting and published in
deposit money statistical tool with aid contributed to the 2019.
bank of SPSS statistical bank distress in
package version 20.0. Nigeria

6 Raed and Palest The impact of This study adopted a The result showed Surprisingly,
Rakan ine creative descriptive design of that accountants the scope of

39
 (2022) accounting on the ex-post facto type, and academics the study was
financial with a sample of 100 evaluated the not mentioned
statements in auditors’ and impact of advanced in the study
Palestine academics’ accounting
perspectives. approaches on the
Questionnaires were reliability of
sent to a random financial reporting
sample of accounting to improve its
instructors and credibility
auditors in Palestine.
7 Bankole, Niger This study The study reviewed It found that The study
Ukolobi ia was designed the theories and frequent was limited to
and to establish techniques of creative manipulation of six (6) years
McDubus the effect of accounting as well as ageing schedule for period. More
(2018) creative the determinants of the purpose of years can be
accounting on shareholders wealth. determining bad covered to
shareholders’ Empirical studies on and doubtful debts validate
wealth. creative accounting provision had no findings
were reviewed. significant effects
on shareholders Empirical
wealth. Evidence in
the study was
limited
8 Imo Niger The study The study adopted The results of the More recent
(2020) ia examined the survey research study showed that: studies on the
relationship design. The population aggressive earnings same topic is
between of the study comprised management has a needed to be
creative twenty food and positive and carried out in
accounting beverage companies in significant the same
practices and Nigeria that are listed relationship with location as the
financial on the Nigerian Stock return on asset, study seems
performance Exchange as at aggressive earnings to be going
of food and December 2020. management has a out of date to
beverage Simple random positive and validate
companies in sampling was used to significant findings
Nigeria select the respondents. relationship with
Structured return on equity,
questionnaire was the income smoothing
data collection has a positive and
instrument used significant
relationship with
return on asset
Abasiam Niger This study The data used in this The study found out Result of the
9 a, Eno ia was to study was obtained that earnings study as at the
and Ese examine the from the annual management time of
(2019) effect of reports of 10 quoted variables; sales publication is

40
 earnings financial banks on the growth index has a not timely as
management Nigerian Stock positive the study was
on Exchange which was insignificant conducted to
shareholder’s sampled using the relationship with 2015 but
wealth purposive sampling market value added, published in
maximization technique from the growth index has a 2019.
of banks listed
population of 15 positive
on the Nigeriabanks. The study insignificant
Stock covered the period of relationship with
Exchange eight years (2010- market value added.
2017). A model was
specified and
descriptive statistics,
correlation analysis
and regression
analysis were carried.
10 Essien Niger The Effect of The quantitative study The study findings This paper
(2019) ia Creative adopted a survey revealed that used only
Accounting research design with a income smoothing, annual report
on target population of tax avoidance and and ignored
Shareholders’ 134 staff from ten (10) changes in other
Wealth in selected listed accounting policies corporate
Money companies. Both have effect on the mass
Deposit Banks primary and secondary shareholders wealth communicatio
Listed data were used in this in the listed n means.
Companies in study. For primary companies in
Nigeria data, the data Nigeria
collection instrument
was questionnaires
while the secondary
data was derived from
financial reports and
related literature
11 Munene Keny The effect of This study used a The researcher Limited
(2015) a creative diverse research found that the empirical
accounting on design; cross-sectional independent evidence were
shareholders’ and explanatory variables explain found in the
wealth in research designs were 64.3% of the study and
listed adopted for primary variance in the more recent
companies in data and time-series shareholders studies are
Kenya for collecting wealth. It’s very required to be
secondary data. This clear that these carried out on
study therefore independent the topic in
adopted mixed variables influence the same
research design to to a large extent the location to
ensure that the data growth of validate

41
 collected and analyzed shareholders findings
addresses the wealth.
objectives of the
study. The study
comprised 64
companies listed on
the NSE. The target
population was
comprised of all listed
companies in Kenya
12 Jones Istanb The effect of He used logic analysis The study findings A total of five
(2011) ul creative and found that very revealed that (5) out of the
accounting on large sized firms were income smoothing, ten (10)
shareholders’ less likely to have tax avoidance and companies
wealth in smoothing behaviour changes in were
listed than small-sized firms, accounting policies inevitably
companies in and firms in service have effect on the excluded
Istanbul industry were less shareholders wealth during the
likely to have in the listed data
smoothing behaviour companies in collection
than firms in financial Istanbul process due to
industry incomplete
data.
13 Sajid, India The influence Taking a sample of 75 Study found that The content
Nazir, of dividend companies from 2005- the difference analysis used
Iqbal and policy on 2010. By performing a between the book in the study
Bilal shareholder multiple regression value of equity and may be
(2012) wealth analysis the average market affected by
is highly significant subjectivity
among companies
paying dividend
rather than non-
paying companies
14 Mazurina Mala Examine the Secondary data was The result indicates The study was
(2020) ysia relationship of collected from data that off-balance limited to four
creative stream and from the sheet finance does (4) firms as
accounting information disclosed influence the well as three
practices in the website of the financial (3) years.
sampled public listed performance of More firms
companies. Malaysian public and years can
listed companies. be covered to
validate
findings
15 Calmes Keny This study is The study will use The research found This paper
and a focused on the both primary and out that many considered
Theoret effects of secondary data, organizations three African

42
 (2019) creative descriptive statistics lacked this countries with
accounting on used to analyze data predictability different
shareholders and also tables and meaning that the policies and
wealth figures which will be dividends that the economic
used for data shareholders would status. The
representation for receive are correct findings of the
better interpretation and could study may not
and understanding. correspond to the be generalized
The target population profitability of the to every
is 65 public listed organization. African
companies in the countries.
Nairobi stock
exchange market.
16 Sanusi Niger this paper The paper utilized The study found Limited
and ia examined structured that IFRSs can be empirical
Izedonmi international questionnaires used to tame review in the
(2014) financial administered to 120 creative accounting. study
reporting professionals
standards (auditors, investors,
(IFRSs) as a stockbrokers). The
way of taming Pearson Product
creative Moment Correlation
accounting as statistical tool was
well as factors used in analyzing the
that trigger field data
unethical
accounting
practices in
Nigeria.
17 Alzoubi Joran This study 90 firm-year Findings revealed The study
(2016) examines the observations of ten that frequent didn’t focus
effect of (10) consumer goods changes in on a particular
creative companies listed on inventory valuation sector or
accounting the Jordan Stock method and assets industry, but
practices on Exchange (NSE). Ex valuation methods from listed
the post facto research respectively have firms across
shareholders design was adopted significant effect on many sectors.
wealth using dataset for the shareholders
period 2011–2019 wealth, while
which were collated frequent changes in
from the annual depreciation
reports and financial methods and
statements of the listed liabilities valuation
consumer goods methods do not
companies. Four significantly affect
hypotheses were shareholders’

43
 proposed and tested wealth.
using pooled panel
data regression.
18 Gunny Niger This study Exposit facto research Findings from the The study
(2010) ia empirically design was adopted. analysis revealed failed to
examined the Data were collected asset structure and consider
impact of from Nigeria Security equity capital are factors which
creative and Exchange negatively and directly
accounting Commission on listed insignificantly contribute to
techniques on deposit money banks related to return on performance,
firm financial in Nigeria from 2008- asset; Loans and such as
statement 2018. Descriptive advances is company size
analysis and ordinary positively and or debt levels
least square were insignificantly of company.
adopted for analysis. related to its returns Future
on assets while research
Total deposit should focus
liabilities is on these
positively and areas.
insignificantly
related to return on
assets
19 Efiok and Niger This study Survey research The study found The stud y
Eton ia examined the design was adopted. that a well-designed sort to fill the
(2012) effect of Data were obtained framework of gap of time
creative from questionnaires accounting frame and
accounting and analyzed with five regulation curbs thus is recent
practice on point likert’s scale and creative accounting and relevant
financial the three hypotheses practices in to validate
reporting in formulated were tested corporate financial findings of
Nigerian using t-test statistical reporting and previous
deposit money tool with aid of SPSS contributed to the studies
bank statistical package bank distress in
version 20.0. Nigeria
20 Idris Niger This study is The study will use The research found A total of five
(2012) ia focused on the both primary and out that many (5) out of the
effects of secondary data, organizations fifteen (15)
creative descriptive statistics lacked this companies
accounting on used to analyze data predictability were
shareholders and also tables and meaning that the inevitably
wealth figures which will be dividends that the excluded
used for data shareholders would during the
representation for receive are correct data
better interpretation and could collection
and understanding. correspond to the process due to
profitability of the incomplete

44
 organization. data.

CHAPTER THREE

45
 RESEARCH METHODOLOGY

Research methodology is the systematic and analytical process and procedures used to

collect data for a particular study in order to provide satisfactory answers to research problems.

This chapter discusses the research methodology under the following subheadings – research

design, population of the study, sample and sampling technique, model specification, discussion

of variables, sources of data and method of analysis.

3.1. Research Design

The study adopted ex-post facto design. This method is considered appropriate because it

draws historical data from the financial statements of the selected listed money deposit banks for

analysis and conclusion purpose.

3.2. Sources of Data

Only the secondary source of data was used in this study in order to achieve its goal. This

is due to the fact that the estimate of the study's models calls for the use of time-series data in the

form of financial data, which is accessible through the financial statements of the bank that

served as a sample. The data were sourced from the annual reports and accounts of the sampled

bank for the years reviewed in the study (2012-2021).

3.3 Population of the Study

The population of the study comprises of twenty-five (25) deposit banks listed on the

Nigerian Exchange Group (NGX) as at December, 31st 2021 (ngxgroup.com).

3.4. Sample and Sampling Technique

46
 Non-probability method in the form of judgmental sampling methodology is utilized to

obtain a sizable number for this study.

Ten (10) deposit money banks were selected from 2012 to 2021 using the judgmental sampling

technique.

3.5. Model Specification

Examining the impact of creative accounting on the shareholder wealth of Nigerian banks is

the study's primary goal. The independent variables used to measure creative accounting include

earnings management, tax evasion, and off-balance sheet financing. The dependent variable

which is shareholders wealth is proxied by Stock price (SP).

The model from Abdul et al, (2019) which is adopted in this study is outlined below;

SP = b0 + b1DPSit + b2 EPSit + b3PER + b4RERit + µ ………………. Adopted model

Modifications were made on the model to examine the relationship between Earnings

management, tax avoidance, and off-balance sheet finance and stock price.

Expressing the models in functional form it becomes:

Model 1:

SP = f (CA)…………..3.1

SP = f (EM, TA, OBSF)…………..3.2

Where:

SP = Stock Price

EM = Earnings Management

47
TA = Tax Avoidance

OBSE = Off-Balance Sheet Finance

Transforming this model into a multivariate regression model, it becomes:

Model:

SPit= b0 + b1EMit + b2TAit + b3OBSFit + uit………….3.2

Where:

b0= Intercept of the model

b1= coefficient of Earnings management

b2= coefficient of Tax avoidance

b3= coefficient of off-balance sheet finance

u= Error Term

3.6. Measurement of Variables

Variable name Description Measurement Source

Independent

variable

Earnings This has to do with This can be calculated by Goksel and

Management artificially improving accruals divided by total Iiker (2020)

earnings and profits by assets

recognizing sales revenue

48
 before it has been earned.

Tax Avoidance Tax avoidance entails a computed by multiplying Ikponmwosa

firm’s conscious actions profit before tax with the and Chizoba

directed at reducing its tax difference between (2018)

obligations by adopting effective tax rate and

approaches which could statutory tax rate

either be legal or illegal

Off balance These are transactions Off balance sheet finance Ablaza (2021)

sheet finance arranged deliberately so as to is measured as the ratio of

enable an entity to keep off-balance items to the

significant assets and total assets.

liability out the statement of

financial position

Dependent

variable

Stock price A stock price is the amount The stock price is Nafia & Tania

someone is willing to pay for measured by the price to (2021)

a company’s shares at a earnings ratio multiplied by

particular point in time. earnings per share

3.7. Method of Analysis

Descriptive and inferential statistics will be used to examine the data collected on all the

variables in order to meet the specified objectives and to provide answers to the research

49
questions. To find out how creative accounting affects shareholder wealth in Nigeria, the

hypotheses will be put to the test using multiple regression analysis. The statistical software

program E-views 10 will be used to examine the hypothese

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