Corporate Fraud, Earnings Management and Firm Value: Empirical Application of M-Scores

Abstract

Background: Corporate fraud and earnings management have been controversial and discussed extensively in the literature, as companies consider the practices strategic and creative to keep their companies afloat and sustain a desired firm value. While this unethical practice has remained illegal, unethical and a global concern, the trajectory to higher incentives by executives to insider dealings to keep the stock price attractive by managers is unacceptable, this study provides new insight and implications of corporate fraud and earnings management on firm value. Objective: This paper investigates the effect of corporate fraud and earnings management on firm value from the perspective of the application of Beneish M-Score manipulation and probability index as indicators to detect corporate fraud and earnings management on Tobin’s Q as a surrogate of firm value The main aim is to establish the consequence of corporate fraud and earnings management on firm value and highlights the forms of corporate fraud and earnings management, stakeholders concerns and unattractiveness of fraud corporate in whatever capacity. Method: Using descriptive statistics and inferential analysis, the study provides evidence that leverage index, sales growth and sales and administrative expense exerted positive effects and channels for corporate fraud and earning management of the selected Nigerian-listed consumer goods manufacturing companies. We found that while each of the day’s sales trade receivables index, assets quality index, leverage index and sales growth quality index exerted positive effects, the gross margin index, depreciation index and total accruals to total index exhibited negative insignificant effects. However, the joint attributes of corporate fraud and earnings management had a positive significant effect on Tobin’s Q as a firm value surrogate Our Conclusion: The study contributing to knowledge, provides new empirical evidence of the application of the Beneish M-Score model as a novelty to the probability incentive for corporate fraud and earnings management in the companies examined.