Impact of Leverage on Real Activity Manipulation of Listed Oil and Gas Firms in Nigeria

The loss suffered by many stakeholders from mismanagement of resources in companies such as African Petroleum, Cadbury Nigeria Plc, WorldCom, and Enron, has resulted in many environmental and institutional changes for so many companies. In an effort to safeguard the rights of investors, shareholders, and other stakeholders and to restrain managers from this dysfunctional attitude, the concept of leverage is employed. This study examines the impact of leverage on the real activity manipulation of listed oil and gas marketing firms in Nigeria for ten years (2009-2018). The study employed multiple regressions to analyse the data obtained from the reports and accounts of the firms. The residuals from the Roychowdhury (2006) model were used as the proxy for real activities manipulation. Leverage was used as the independent variable of the study. The finding from the fixed-effect regression reveals that financial leverage has significant negative impacts on real activity manipulations, while total debt has a negative but insignificant impact on real activity manipulations. This implies that there is a tied debt covenant that reduces management's ability to manipulate earnings to their desired level. As a result, boards, and other users of accounting information should strive to control management's activities of manipulating real activities through qualitative auditing and proper division of labour. Tax authority should factor in leverage in placing reliance on the earnings reported by firms since it reduces instances of earnings management.