International Journal of Accounting, Finance and Risk Management

| Peer-Reviewed |

Effect of Creative Accounting Practices on Solvency of Selected Deposit Money Banks Quoted in Nigeria

Received: 17 January 2023    Accepted: 27 February 2023    Published: 20 March 2023
Views:       Downloads:

Share This Article

Abstract

The purpose of deposit money banks is to maximize solvency by acting as an economic intermediary between economic sectors that are in deficit and those that are in surplus. One of the main goals of deposit money banks' existence is to achieve solid bank solvency. However, fraud manner of using creative accounting measures in manipulating bank financial information has resulted to insolvency and collapsed of deposit money banks in Nigeria. The objective of the study is to examine the effect of creative accounting practices (cash assets structure, equity capital structure, loan structure, deposit liability and accrual quality) on solvency of selected deposit money banks quoted in Nigeria. The population of the study comprised of all the nineteen (19) listed deposit money banks as at December, 2021 while a targeted random sampling technique was adopted to select the sample size of ten (10) failed banks and seven (7) surviving commercial banks listed in Nigeria Stock Exchange (NGX). Ex post facto research design was adopted using dataset for the period 2006–2021 which were collated from the annual reports and financial statements of the listed deposit money banks. The data collected were analyzed using mean scores and Panel Regression Model method. The analysis revealed that three of the proxies of creative accounting such as cash assets structure, equity capital structure and deposit liability negatively but insignificantly influenced the survival of the DMBs, accrual quality is having a negative and significant effect on survival of the banks while only loan structure is having a positive but insignificant effect on survival of the DMBs on bank solvency (AdjR2= 0.258, F= 12.07: p < 0.05); while for failed banks, it was revealed that cash assets structure, and equity capital structure have positive and significant effect but equity capital structure has negative and significant effect while loan structure, deposit liability and asset quality have positive and insignificant effect on bank solvency (AdjR2= 0.33, F= 7.38: p < 0.05). The study concluded that creative accounting measures affect bank solvency in Nigeria. Therefore, the study recommended that bank managers should endeavor to employ accounting measures based on global and accounting standard so as to enhanced bank solvency among deposit money banks in Nigeria.

DOI 10.11648/j.ijafrm.20230801.13
Published in International Journal of Accounting, Finance and Risk Management (Volume 8, Issue 1, March 2023)
Page(s) 21-30
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Cash Assets Structure, Deposit Liability, Equity Capital Structure, Loan Structure, Bank Solvency

References
[1] Adámiková, E., & Tatiana, C. (2021). Creative accounting and the possibility of its detection in the evaluation of the company by expert. Journal of Risk and Financial Management, 14 (12), 327-339.
[2] Adegbie, F. F., Salawu, R. O., & Usifoh, O. O. (2019). Auditing Quality and Earnings Persistence in Nigerian Quoted Manufacturing Companies. International Journal of Research and Innovation in Social Science, 3 (6), 227-237.
[3] Ahmed, Y. A. I. (2017). The Impact of Creative Accounting Techniques on the Reliability of Financial Reporting with Particular Reference to Saudi Auditors and Academics: International Journal of Economics and Financial, 7 (2), 283-291ISSN: 2146-4138.
[4] Ahmed, H. U., Ningi, S. I., & Dalhat, B. S. (2018). Capital Structure and performance of deposit money banks in Nigeria. NDIC Quarterly, 33 (3), 49-76.
[5] Akenbor, C. & Ibanichuka, E. (2012). Creative accounting practices in Nigerian banks. An International Multidisciplinary Journal, Ethiopia, 6 (3), 23-34.
[6] Alozie, C. E. (2018). Sovereign treasury solvency and financial performance management in Nigeria. Journal of Economics and International Finance, 10 (7), 77-88.
[7] Al-Olimat, N. H. & Al Shbail, M. O. (2021). The mediating effect of external audit quality on the relationship between corporate governance and creative accounting. International Journal of Financial Research, 12 (1), 149-157.
[8] Aldasoro, I., & Park, K. (2018). Bank solvency risk and funding cost interactions in a small open economy: evidence from Korea. BIS Working Paper, 737-773.
[9] Asif, M., Junaid, M., Yu, O., & Md, R. (2016). Solution of adapting creative accounting practices: An in-depth perception gap analysis among accountants and auditors of listed companies. Australian Academy of Accounting and Finance Review, 2 (2), 166-188.
[10] Ayunku, P. E., & Uzochukwu, A. (2020). Credit management and issues of bad debts: An empirical study of listed deposit banks in Nigeria. Asian Journal of Economics, Business and Accounting, 14 (6), 32-49.
[11] Balagobei, S. (2020). Accounting practices and organizational performance: evidence from small and medium scale enterprises in Sri Lanka. Indian Journal of Finance and Banking, 4 (1), 69-75.
[12] Bankole, K. O., Ukolobi, I. O., & McDubus, O. F. (2018). Creative accounting practices and shareholders’ wealth. Accounting and Taxation Review, 2 (4), 58-74.
[13] Bandta, O., Lecarpentier, S., & Pouvelle, C. (2021). Determinants of banks’ liquidity: A French perspective on interactions between market and regulatory requirements. Journal of Banking & Finance, 124, 1-18.
[14] Dang, V. D., & Huynh, J. (2019). The effects of loan portfolio diversification on Vietnamese banks’ return. In: Kreinovich, V., Thach, N., Trung, N., & Van, T. D. (eds) Beyond Traditional Probabilistic Methods in Economics. ECONVN 2019. Studies in Computational Intelligence. 809. Springer, Cham.
[15] De-Bandt, O., Lecarpentier, S., &Pouvelle, C. (2020). Bank solvency, liquidity and financial crisis: what relationship? banque-france.fr/en/blog-entry/bank-solvency-liquidity-and-financial-crisis-what-relationship
[16] Doorasamy, M. (2021). Capital structure, firm value and managerial ownership: evidence from East African countries. Investment Management and Financial Innovations, 18 (1), 346-356.
[17] Egolum, P. U. P., & Onoda, B. E. P. (2021). Effect of creative accounting practice on financial reporting in Nigerian deposit money bank. Journals of Accounting Innovation and Information, 4 (8), 67-79.
[18] Ehiriudu, J. A., Ude, G. I., &Ani, M. U. (2020). The effect of creative accounting on the financial performance of deposit money banks in Nigeria from 2008 -2017. International Journal of Innovative Research & Development, 9 (2), 202-215.
[19] Elaigwu, M., Audu, F., & Abdullahi, S. R. (2020). Creative accounting and corporate failure in the Nigerian financial reporting. /Users/user/Downloads/ELAIGWUMOSES-ArticleonCreativeAccounting%20 (2).pdf
[20] Ezuwore-obodoekwe, C. N. & Elias, I. (2020). Effect of creative accounting practices on the performance of Nigerian banks. International Journal of Research and Development (IJRD), 5 (9), 1-14.
[21] Isik, I., & Uygur, O. (2021). Financial crises, bank efficiency and survival: Theory, literature and emerging market evidence. International Review of Economics & Finance, 76, 952-987.
[22] Lynch, M. (2000). Against reflexivity as an academic virtue and source of privileged knowledge. Theory, Culture & Society, 17 (3), 26-54.
[23] Nangih, E. (2017). Nexus between creative accounting practices and financial statements quality in Nigeria: A reflection of oil servicing companies in Port Harcourt metropolis. Journal of Accounting and Financial Management, 3 (3), 64-71.
[24] Ndebugri, H., & Tweneboah, S. E. (2018). Analyzing the critical effect of creative accounting practice in the corporate sector of Ghana. file:///C:/Users/user/Downloads/SSRN-id3236965%20 (1).pdf
[25] Odo, J., & Ugwu, J. I. (2020). Creative accounting and performance of deposit money banks In Nigeria. Journal of Accounting Information and Innovation, 6 (8), 37-47.
[26] Okoye, E. I., & Obioma, J. N. (2020). Impact of creative accounting techniques on firm financial performance: A study of selected firms in Nigeria. Journal of Accounting and Financial Management, 6 (2), 1-14.
[27] Olojede, P., Iyoha, F., & Egbide, B. (2020). Corporate governance and creative accounting practices in the listed companies in Nigeria. Academy of Accounting and Financial Studies Journal, 24 (4), 57-72.
[28] Oino, I. (2021). Bank solvency: The role of credit and liquidity risks, regulatory capital and economic stability. Banks and Bank Systems, 16 (4), 84- 100.
[29] Raduan, C. R., Jegak, U., Haslinda, A., & Alimin, I. I. (2009). Management, strategic management theories and the linkage with organizational competitive advantage from the resource-based view. European Journal of Social Sciences, 11 (3), 402-418.
[30] Sanusi, B., & Izedonmi, P. F. (2014). Nigerian commercial banks and creative accounting practices. Journal of Mathematical Finance, 4, 75-83.
[31] Seman, N. A. A., Jusoh, N. A. Q., Rashid, U. K., & Ramin, A. K. (2019). An analysis of basic accounting practices of microenterprises. International Journal of Engineering and Advanced Technology, 5 (5C), 628-637.
[32] Sianyo, P. A. (2016). Effect of creative accounting practices on long term survival of firms listed at the Kenyan Nairobi securities exchange (Doctoral dissertation).
[33] Siyanbola, T. T., Benjamin, R. D., Amuda, M. B., & Lloyd, J. F. (2020). Creative accounting and investment decision in listed manufacturing firms in Nigeria. Journal of Accounting and Taxation, 12 (1), 39-47.
[34] Tyoakosu, S. A & Ekpe, M. J. C. (2018). Effect of creative accounting on the performance of deposit money banks in Nigeria. Nigerian Journal of Management Sciences, 6 (2), 212-223.
[35] Umobong, A. A., & Ironkwe, U. (2017). Creative accounting practices and financial performance of firms. International Journal of Innovative Finance and Economics Research, 5 (1), 1-10.
[36] World Bank Report (2020). Global financial development report 2019 / 2020: Bank regulation and supervision a decade after the global financial crisis. https://www.worldbank.org/en/publication/gfdr
[37] Gupta, R. (2018). Creative accounting practices: A case study of Enron and Satyam scandals. International Journal of Research and Analytical Reviews, 5 (4), 238-242.
[38] Gujarati, D. N., Bernier, B., & Bernier, B. (2004). Econométrie (pp. 17-5). Brussels: De Boeck.
[39] Novickytė, L., & Petraitytė, I. (2013). Assessment of banks asset and liability management: problems and perspectives (case of Lithuania). Procedia-Social and Behavioral Sciences, 110, 1082-1093.
[40] Usifoh, O. O., Adegbie, F. F. & Salawu, R. O. (2019). Audit quality and accrual quality in Nigerian quoted manufacturing firms. The International Journal of Economic and Administrative Sciences, 19 (2), 50-63.
Cite This Article
  • APA Style

    Dada Samuel Olajide, Ajibade Ayodeji Temitope, Nwobodo Helen. (2023). Effect of Creative Accounting Practices on Solvency of Selected Deposit Money Banks Quoted in Nigeria. International Journal of Accounting, Finance and Risk Management, 8(1), 21-30. https://doi.org/10.11648/j.ijafrm.20230801.13

    Copy | Download

    ACS Style

    Dada Samuel Olajide; Ajibade Ayodeji Temitope; Nwobodo Helen. Effect of Creative Accounting Practices on Solvency of Selected Deposit Money Banks Quoted in Nigeria. Int. J. Account. Finance Risk Manag. 2023, 8(1), 21-30. doi: 10.11648/j.ijafrm.20230801.13

    Copy | Download

    AMA Style

    Dada Samuel Olajide, Ajibade Ayodeji Temitope, Nwobodo Helen. Effect of Creative Accounting Practices on Solvency of Selected Deposit Money Banks Quoted in Nigeria. Int J Account Finance Risk Manag. 2023;8(1):21-30. doi: 10.11648/j.ijafrm.20230801.13

    Copy | Download

  • @article{10.11648/j.ijafrm.20230801.13,
      author = {Dada Samuel Olajide and Ajibade Ayodeji Temitope and Nwobodo Helen},
      title = {Effect of Creative Accounting Practices on Solvency of Selected Deposit Money Banks Quoted in Nigeria},
      journal = {International Journal of Accounting, Finance and Risk Management},
      volume = {8},
      number = {1},
      pages = {21-30},
      doi = {10.11648/j.ijafrm.20230801.13},
      url = {https://doi.org/10.11648/j.ijafrm.20230801.13},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijafrm.20230801.13},
      abstract = {The purpose of deposit money banks is to maximize solvency by acting as an economic intermediary between economic sectors that are in deficit and those that are in surplus. One of the main goals of deposit money banks' existence is to achieve solid bank solvency. However, fraud manner of using creative accounting measures in manipulating bank financial information has resulted to insolvency and collapsed of deposit money banks in Nigeria. The objective of the study is to examine the effect of creative accounting practices (cash assets structure, equity capital structure, loan structure, deposit liability and accrual quality) on solvency of selected deposit money banks quoted in Nigeria. The population of the study comprised of all the nineteen (19) listed deposit money banks as at December, 2021 while a targeted random sampling technique was adopted to select the sample size of ten (10) failed banks and seven (7) surviving commercial banks listed in Nigeria Stock Exchange (NGX). Ex post facto research design was adopted using dataset for the period 2006–2021 which were collated from the annual reports and financial statements of the listed deposit money banks. The data collected were analyzed using mean scores and Panel Regression Model method. The analysis revealed that three of the proxies of creative accounting such as cash assets structure, equity capital structure and deposit liability negatively but insignificantly influenced the survival of the DMBs, accrual quality is having a negative and significant effect on survival of the banks while only loan structure is having a positive but insignificant effect on survival of the DMBs on bank solvency (AdjR2= 0.258, F= 12.07: p 2= 0.33, F= 7.38: p < 0.05). The study concluded that creative accounting measures affect bank solvency in Nigeria. Therefore, the study recommended that bank managers should endeavor to employ accounting measures based on global and accounting standard so as to enhanced bank solvency among deposit money banks in Nigeria.},
     year = {2023}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - Effect of Creative Accounting Practices on Solvency of Selected Deposit Money Banks Quoted in Nigeria
    AU  - Dada Samuel Olajide
    AU  - Ajibade Ayodeji Temitope
    AU  - Nwobodo Helen
    Y1  - 2023/03/20
    PY  - 2023
    N1  - https://doi.org/10.11648/j.ijafrm.20230801.13
    DO  - 10.11648/j.ijafrm.20230801.13
    T2  - International Journal of Accounting, Finance and Risk Management
    JF  - International Journal of Accounting, Finance and Risk Management
    JO  - International Journal of Accounting, Finance and Risk Management
    SP  - 21
    EP  - 30
    PB  - Science Publishing Group
    SN  - 2578-9376
    UR  - https://doi.org/10.11648/j.ijafrm.20230801.13
    AB  - The purpose of deposit money banks is to maximize solvency by acting as an economic intermediary between economic sectors that are in deficit and those that are in surplus. One of the main goals of deposit money banks' existence is to achieve solid bank solvency. However, fraud manner of using creative accounting measures in manipulating bank financial information has resulted to insolvency and collapsed of deposit money banks in Nigeria. The objective of the study is to examine the effect of creative accounting practices (cash assets structure, equity capital structure, loan structure, deposit liability and accrual quality) on solvency of selected deposit money banks quoted in Nigeria. The population of the study comprised of all the nineteen (19) listed deposit money banks as at December, 2021 while a targeted random sampling technique was adopted to select the sample size of ten (10) failed banks and seven (7) surviving commercial banks listed in Nigeria Stock Exchange (NGX). Ex post facto research design was adopted using dataset for the period 2006–2021 which were collated from the annual reports and financial statements of the listed deposit money banks. The data collected were analyzed using mean scores and Panel Regression Model method. The analysis revealed that three of the proxies of creative accounting such as cash assets structure, equity capital structure and deposit liability negatively but insignificantly influenced the survival of the DMBs, accrual quality is having a negative and significant effect on survival of the banks while only loan structure is having a positive but insignificant effect on survival of the DMBs on bank solvency (AdjR2= 0.258, F= 12.07: p 2= 0.33, F= 7.38: p < 0.05). The study concluded that creative accounting measures affect bank solvency in Nigeria. Therefore, the study recommended that bank managers should endeavor to employ accounting measures based on global and accounting standard so as to enhanced bank solvency among deposit money banks in Nigeria.
    VL  - 8
    IS  - 1
    ER  - 

    Copy | Download

Author Information
  • Department of Accounting, Babcock University, Ilishan-Remo, Nigeria

  • Department of Accounting, Babcock University, Ilishan-Remo, Nigeria

  • Department of Accounting, Babcock University, Ilishan-Remo, Nigeria

  • Sections