Research Purpose: In light of the increasing prevalence of creative accounting practices in Nigeria, this study investigates their impact on shareholders' wealth. The study aims to explore the relationship between creative accounting and key financial metrics such as stock prices, earnings per share, and dividend payout.
Methodology: The study employed a probit regression model to analyse the effect of creative accounting practices on shareholders' wealth. Data was collected and evaluated using proxies such as depreciation costs, research and development expenses, and overstated assets and write-offs.
Findings: The results indicate a significant negative relationship between creative accounting practices and shareholders' wealth in Nigeria. Specifically, a 1% increase in depreciation costs, research and development expenses, and asset overstatements leads to notable declines in stock prices (9.7%, 8.7%, 8.2%), earnings per share (7.3%, 5.0%, 3.4%), and dividend payouts (1.5%, 5.7%, 2.2%), respectively.
Conclusion: The study concludes that creative accounting practices substantially diminish shareholders' wealth in Nigeria. This underscores the detrimental effects of such practices on financial performance and investor returns.
Recommendations: To mitigate the adverse effects of creative accounting, it is recommended that firms establish robust internal control systems. This includes enhancing oversight and transparency in financial reporting to protect shareholders' interests and ensure sustainable wealth creation.
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