Creative Accounting and Financial Performance of Deposit Money Banks in Nigeria

Abstract

The broad objective of the study is to examine the effect of creative accounting on the financial performance of deposit money banks in Nigeria, while specifically the study seeks to determine the effect of accrual-based earnings management on the profitability of DMBs in Nigeria and the influence of real earnings management on the market valuation of DMBsinNigeria.Thisstudyadoptedex-postfactoresearchdesign.Thepopulationofthestudyismade upofall the twelve (12) listed Banks on Nigeria exchange group. Secondary data was used for the study. The sources of data used for the study was ten (10) years (2015-2024) annual report of the banks. Linear regression analysis with the aid of Eview software version 10 was used to analyzed the data. The result of the test of hypotheses one revealed that accrual-based earnings have a significant effect on profitability of Deposit Money Banks in Nigeria, while the results obtained from the test of hypotheses two revealed that real earnings have a significant effect on market valuation of Deposit Money Banks. Based on the findings from the conducted empirical test of the study, the study concludes that creative accounting has a significant effect on financial performance of deposit money banks in Nigeria. The study recommends that banks management and regulators should implement stricter internal control and audit practices to curb excessive use of discretionary accruals. This will enhance credibility of reported profitability, ensuring that it reflects genuine performance and not creative accounting choices and that regulators such as CBN and financial reporting council of Nigeria should strengthen monitoring and disclosure frameworks to reduce manipulation of real activities in banks. This will ensure that market valuation reflects the true financial health of banks and not short-term manipulations.