Assessing the Practice and Implications of Earnings Management among Listed Financial Services Companies in Zambia

Abstract

Financial statements are crucial for investors and stakeholders to assess a company's financial health. There is a concern that companies and banks listed on the Lusaka Stock Exchange (LuSE) may be using creative accounting techniques to manage their earnings figures (earnings management) to present a more favourable financial position. This study seeks to assess the Practice and Implications of Earnings Management Among Listed Financial Services Companies in Zambia. The study utilized a mixed method approach were both qualitative and quantitative methods were utilized targeting 923 permanent employees of all the companies that were listed on the Lusaka Stock Exchange (LuSE). The study ascertained the extent to which earnings management was practiced among the companies and further determined the extent to which earnings management was reliable in the companies and banks listed on LuSE. The study also determines the challenges faced among the companies and banks listed on LuSE in relation to earnings management. The results revealed that the majority of the selected companies were not frequently practicing earnings and that the practice was done yearly. This was evident based on the Beneish – Model results score of 2.25 indicating possible manipulation. Results from the study show that on the Beneish Model shows average magnitude of abnormal accruals. This result revealed that earnings management presented numerous challenges in the companies. From these results, it could be deduced that in the last 6 months by the time of writing this report, on average there was minimal improvement in the company’s reputation after earning management practices. The findings revealed the majority of the publicly held companies exceeding 75% intentionally distort earnings to misrepresent performance while adhering to the country’s laws.