The Effect of Earnings Management on Financial Performance of Quoted Companies in Kenya

Abstract

The main objective of this research study was to establish the relationship between earnings management and financial performance of companies listed in Nairobi Securities Exchange. The study adopted a descriptive research design. The population of the study consisted of the 66 companies quoted in the Nairobi Securities Exchange as at 31st December 2016. The study used a census approach. Data was analyzed using regression model. The study discovered that earnings management, firm size, and market to book value ratio positively and significantly influenced financial performance of the firms listed at the Nairobi Securities Exchange. The study found that the coefficient for earnings management was 0.764, meaning that earnings management positively and significantly influenced the Stock return among companies listed at the Nairobi Securities Exchange in Kenya. The study also found that the coefficient for firm size was 0.591, meaning that Firm size positively and significantly influenced the stock return among companies listed at Nairobi Securities Exchange. The study also found that the coefficient for market to book value ratio was 0.567, meaning that market to book value ratio positively and significantly influenced the stock return among companies listed at Nairobi Securities Exchange. The study concluded that earnings management, firm size and market to book value ratio positively and significantly influenced financial performance companies listed at the Nairobi Securities Exchange in Kenya.