Earnings Quality and Ownership Structure: Moderating Effect of Leverage on Firm Value in Non-Financial Sectors of the NGX

Abstract

This study examines the moderating effects of financial leverage on the relationships among earnings quality, ownership structure, and firm value within the non-financial sectors of the Nigerian Stock Exchange (NGX). Using a sample of 78 purposively selected non-financial firms from the NGX from 2013 to 2022, this study employs moderated linear regression analysis to explore these dynamics. This study aims to fill significant gaps in existing literature by addressing the sectoral effects and interactive impact of financial leverage on the established relationships between earnings quality, ownership structure, and firm value. The findings reveal that earnings quality significantly enhances firm value, thereby affirming the importance of transparent and reliable financial reporting. Institutional ownership is positively correlated with firm value, underscoring its role in effective corporate governance. Conversely, managerial ownership negatively impacts firm value, indicating potential conflicts of interest that detract from shareholder value. Moreover, financial leverage moderates these relationships significantly, with its impact varying by ownership type and earnings quality. The study also identified distinct sectoral effects, indicating that the impact of these variables can differ substantially across different industry sectors. This insight is crucial for policymakers and practitioners aiming to tailor governance structures and financial strategies to enhance firm performance effectively. These results not only contribute to the theoretical literature on corporate finance and governance by integrating agency theory and pecking order theory but also offer practical implications for regulatory bodies such as the Financial Reporting Council of Nigeria (FRCN) and the Securities and Exchange Commission (SEC). By advocating for rigorous disclosure and reporting standards, these findings can help improve corporate accountability and enhance investor confidence in emerging markets like Nigeria.

Keywords: Moderating Effect, Ownership Structure, Earnings Quality, Financial Leverage

DOI: 10.7176/EJBM/16-5-02

Publication date: June 30th 2024