DOES OPPORTUNISTIC CREATIVE ACCOUNTING OR INFORMATIVE CREATIVE ACCOUNTING LEAD TO CORPORATE FAILURE?

Ernest Oshodin
Christian Iyafekhe
University of Benin, Nigeria

ABSTRACT

This study investigated whether informative creative accounting or opportunistic creative
accounting affect the corporate failure. This became necessary as creative accounting has been
pointed to be one of the main reasons for companies collapsing. Both real earnings management
and accrual earnings management were the proxies for creative accounting in this study.
The data on the corporate failure and creative accounting (opportunistic and informative)
were derived from the annual report of non-financial companies quoted on the Nigeria Exchange
group from the year 2010 to 2020. Using a sample of industries and the binary regression, the
outcome revealed: (1) when the creative accounting was used for opportunistic purposes, both
real earnings management and accrual earnings management have a positive relationship with
corporate failure, (2) when the creative accounting was used for informative purposes, both real
earnings management and accrual earnings management do have a negative relationship with
corporate failure. Therefore, the study recommends that rather than calling for the discontinuity
of creative accounting in financial reporting, firms should be encouraged to prioritise the uses of
creative accounting for informative purposes.

Keywords: Creative accounting; beneficial earnings management; opportunistic earnings management, real
earnings manipulation; Accrual earnings manipulation