POSSESSION FORMATION AND EARNINGS MANAGEMENT OF LISTED CHEMICAL AND PAINTS FIRMS IN NIGERIA

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Almost two decades after the global financial crises of 90’s blamed on
the pervasiveness of earnings management, the concept still dominates
financial literature. Ownership spread and control, otherwise known as
Possession Formation ought to play an immeasurable role in mitigating
management excessiveness and opportunistic behaviour in
misrepresentation of underlying economic reality of a firm, Thus, the
study examines the influence of Possession Formation on Earnings
Management of listed Chemical and Paints in Nigeria. Possession
Formation was proxy by managerial ownership, institutional ownership,
Block-holding and Foreign Ownership, while Earnings management
was represented by modified Jones (Dechow, Sloan and Sweeney, 1995)
model. Using 56 firm-year paneled observations, Fixed and Random
effect were estimated. Secondary data was collected from the eighth
firms listed under the Chemical and Paints sectors of the Nigeria Stock
Exchange for the period of 2006-2012. The findings revealed that,
managerial ownership is positively and significantly influencing the
earnings management of listed chemical and paints firms, while
Institutional ownership, and foreign ownership were found to have
negative and significant influence on earnings management of listed
chemical and paints firms in Nigeria. However, Block Holdings were
found to have an insignificant contribution to earnings management of
listed Chemical and Paints firms in Nigeria. From the findings, the study
recommended that the proportion of share held by management should
be reduced to an average of 15%, while the proportion of share held by
both Institutional investors and foreign investors should be increased to
an average of 50 and 30% as this will constrain managers from abusive
accounting and guarantee great reliance by investors on the quality of
financial reports.