Creative Accounting and Corporate Failure: A Case Study of Selected Deposit Money Banks in Nigeria
Creative Accounting and Corporate Failure: A Case Study of Selected Deposit Money Banks in Nigeria

Summary/Abstract: This study investigates the connection between creative accounting practices and corporate failure among selected deposit money banks in Nigeria. The research aimed to establish the effects of discretionary accruals management and non-discretionary accruals on the occurrence of financial distress. This inquiry was motivated by the growing incidence of bank failures and financial scandals in Nigeria, often attributed to the manipulation of accounting information and weaknesses in corporate governance structures. The study adopted an ex post facto research design. The researchers collected secondary data from the published annual reports of five selected banks, spanning the 10 years from 2015 to 2024. Data were analysed using descriptive statistics, correlation analysis, and multiple regression in EViews. The results revealed a significant negative relationship between both discretionary and non-discretionary accruals and the proxy for corporate failure. The negative coefficient for discretionary accruals suggests that managers may employ earnings manipulation to mask financial distress in the short term. On the contrary, the negative correlation between non-discretionary accruals indicates that accruals from real operations are related to financial stability. This paper concludes that whereas abusive creative accounting falsely represents a bank's actual financial well-being, strategic exploitation of discretionary accruals can temporarily conceal financial distress. It is also advisable that regulators tighten compliance controls and impose more stringent audit controls. The management of a bank must adhere to ethical accounting practices, and the external auditors must be professionally sceptical to clearly identify earnings management as early as possible.

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