Effect of Firm Characteristics on Real Earnings Management of Listed Non-Financial Firms in Nigeria

This study investigates the effect of firm characteristics on real earnings management (REM) among listed non financial firms in Nigeria from 2015 to 2024. Specifically, it examines how financial leverage, audit quality, managerial ownership, and board composition influence managers’ use of real operational decisions such as abnormal production, discretionary expenditures, and sales manipulation to achieve targeted earnings. Employing an ex post facto research design, the study analyzes panel data for 70 firms over ten years. After confirming the absence of multicollinearity (mean VIF = 1.01) and selecting the fixed effects model via the Hausman test (χ² = 12.87; p = 0.0243), regression results reveal that financial leverage significantly increases REM (β = 0.215; p < 0.01), while audit quality (β = –0.139; p < 0.05) and  (β = –0.091; p < 0.05) significantly reduce REM. Managerial ownership exhibits a marginally positive effect (β = 0.081; p < 0.10). The model explains 23.7% of within‐firm variation in REM (F = 14.27; p < 0.001). Findings underscore the importance of prudent debt management, high quality external audits, and strong board composition in curbing opportunistic real earnings manipulation. Recommendations include enhancing board composition, enforcing auditor rotation and independence standards, adopting sustainable leverage policies, and calibrating managerial ownership guidelines to balance incentive alignment with governance integrity.