PERFORMANCE-BASED COMPENSATIONS AND EARNINGS SMOOTHING IN THE NIGERIAN INDUSTRIAL SECTOR

Abstract

One of the motivations for managing earnings as argued in the extant literature is compensation. This has raised some questions on the nature relationship between managers’ compensation methods and EM. To answer this question, this paper focused on share-based compensations, bonus-based compensations and profit-based compensation. Financial data were retrieved from the annual reports of the selected pubic industrial and consumer goods firms over 10 years spanning from 2012 to 2021. The study adopted four separate panel regression (random effect model). The results revealed that; share-based compensations, bonus-based compensations, profit-based compensations affected earnings smoothing positively and significantly. This implies that, the higher the share-based compensations, bonus-based compensations, profit-based compensations, the more managers smooth their earnings. Performance-based compensations influence earnings smoothing of quoted industrial and consumer goods firms in Nigeria significantly. Consequently, the study recommends that, the regulatory agencies should revisit the governance code in order to review the compensation options available to managers and directors of the company. Again, owners and other key stakeholders should be cautious of the tendency for managers to engage in earnings smoothing especially when the outcome is favourable to managers.

Keywords: Share-Based Compensations, Bonus-Based Compensations, Profit-Based  Compensations, Earnings Management.