Earning Management: Analysis of Non-Banking Firms Listed in Nairobi Securities Exchange using Beneish M-Score and Altman Z-Score

Abstract

Earning management or manipulation has been that has been used for a long time by the management of various firms to adjust financial reports to meet certain objectives. This practice has been used even for fraudulent and selfish activities. The purposes of the research were to ascertain the levels of earning manipulations and financial distress of non-banking firms listed in Nairobi securities exchange. The latest financial statements were used as the source of information. The Beneish five-variable model was used to determine the presence of earning manipulations. Altman’s Z-Score was used to test the financial distress. The analysis revealed that 58.3% of the firms were not involved in earning manipulations. Further data showed that 41.7% of the analysed firms were in financial distress. The study recommends restitutions by fraud perpetrators through earning manipulations, change of auditors approach to certification of financial reports by including ratios calculations and financial bailout by the government and owners of the businesses in case of financial distress based on economic hardships.