EFFECT OF MANAGEMENT PRACTICES ON CREATIVE ACCOUNTING AMONG CORPORATIONS LISTED AT THE NAIROBI SECURITIES EXCHANGE
Abstract
The purpose of this thesis was to determine the management practices influencing
creative accounting among listed on the Nairobi Securities Exchange (NSE) in Kenya.
The study analyzed the effect of manager‟s compensation, contractual obligations, tax
management, Share price performance management and insider dealings on creative
accounting. The study was based on the existing theories, more so on the positive
accounting theories, which were used to identify these accounting practices. Systematic
sampling method was applied in selecting the sample for the study. The research design
used in this study was a cross sectional survey design which assessed data for the year
2014. Secondary data was extracted from the annual financial reports for the respondent
companies, NSE database, journals and other publications. Primary data was acquired
through administering questionnaires and interviews to a sample of managers,
accountants and internal auditors of companies publicly listed on the NSE. A sample of
thirty nine out of a target population of sixty four Companies publicly listed was
extracted from the Nairobi Securities Exchange website. A pilot test on a different
sample gave a Cronbach‟s alpha greater than 0.8 for all the variables. Data analysis was
by descriptive statistics and inferential statistics using Statistical Packages for Social
Sciences (SPSS). Analysis of variance (ANOVA) was used to establish the level of
statistical significance of difference between the observed and expected values.
Regression analysis was used to estimate the model coefficients while Pearson
coefficient of correlation was used to establish the strength of relationship among the
variables, Test of hypothesis was also carried out. The results indicated that manager‟s
compensation, contractual obligations, tax management and insider dealings have
significant effect on creative accounting. Share price performance management on the
other hand had no significant influence on creative accounting among the companies
listed on the NSE. This was further confirmed by R2
improving from 0.5 to 0.61 after
dropping Share Price Performance Management from the model. The limitations of the
study included the fact that topic is quite sensitive and most of the respondents viewed xix
such information as confidential. The researcher convinced the respondents by first
explaining that creative accounting is not necessarily illegal. Another limitation was the
analysis of the secondary data employed the modified Jones Model, which despite its
application by many researchers has been critiqued as having some limitations such as
errors related to measures of discretionary accruals. The study recommended that, there
is need for corporations to have special board members charged with monitoring and
evaluation activities. Where such members exist, they need to be more vigilant in
assessing the quality of the financial statements