EFFECT OF FIRM SIZE AND INFLATION ON ACCOUNTING AND PRICE PERFORMANCE OF MANUFACTURING FIRMS IN NIGERIA

Abstract

The objective of the study was to determine the influence of firm size, inflation and earnings management on accounting and price performance of manufacturing firms in Nigeria using secondary data obtained from firms’ financial statement for the period 2013 to 2022. Six measures of performance Returns on asset, returns on equity, market capitalization, price earnings ratio, and Tobin Q and Enterprise value were proxied for performance. Multiple Regression analysis and correlation matrix was used in the study. Hausmann test was conducted for selection of model between fixed and random effects. Classic assumption tests and other diagnostic tests were conducted on data set. From the result of the study using p-values, we found Firm size, and earnings management significantly impact Returns on Asset while inflation has weak relationships with Returns on Asset. Earnings management significantly impact Returns on equity while size and inflation have weak relationships with Returns on Equity. Firm size, inflation and earnings management significantly impact Tobin. Firm size and earnings management significantly and positively impact Price earnings ratio while inflation has a weak relationship with Price earnings ratio. Firm size, inflation and earnings management significantly impact Market capitalization. Inflation reduces market capitalization while increase in firm size increases market capitalization. Bigger firms tend to attract higher market price. Firm size significantly and negatively affects enterprise value while inflation and earnings management insignificantly impact enterprise value. ENVA has a negative correlation with ROA, ROE and PE ratio. Indeed, the negative correlation between ENVA and ROE and ROA is significant and shows that when ROE or ROA are rising in the firms, ENVA is falling at the same time. Based on findings of the study we recommend that Corporate Managers should be observant and identify optimum firm size while expanding to ensure lowest cost and maximal profit. The impact of inflation should be considered in formulation of corporate policies while managers should avoid earnings management because of its significant impact on ROA and ROE.