This study examines the relationship between capital structure decisions and earnings management practices among publicly listed firms in Nigeria. Using a panel dataset of 152 firms over the period 2015-2024, we investigate whether firms' financing choices influence their propensity to engage in earnings manipulation. Employing the Modified Jones Model to measure discretionary accruals as a proxy for earnings management and multiple capital structure metrics, our findings reveal a significant positive relationship between leverage and earnings management. Specifically, firms with higher debt ratios demonstrate greater tendencies toward earnings manipulation, suggesting that financial pressure associated with debt obligations may incentivize managerial opportunism. The study controls for firm size, profitability, liquidity, age, asset tangibility, and growth opportunities. These findings contribute to the growing literature on corporate governance in emerging markets and have important implications for regulators, investors, and corporate managers in understanding the unintended consequences of financing decisions. The results suggest that policymakers should enhance monitoring mechanisms and strengthen corporate governance frameworks to mitigate earnings management risks associated with aggressive capital structure policies.
Onipe Adabenege Yahaya (Tue,) studied this question.