Abstract: This study is an empirical investigation of creative accounting practices in the Kenya. Creative accounting is carried out with an objective of making the company appear to be financially stronger or weaker depending on the management’s aspirations. There has been a corporate failure which has become a major issue with respect to firms worldwide which has been attributed to excessive practice of creative accounting. The general objective of the study was to evaluate the influence of creative accounting practices on the financial performance of public limited companies listed in the Nairobi securities exchange in Kenya. This study considered tax avoidance, accelerated depreciation, and income smoothing as part of the major creative accounting practices that influence financial performance of public limited firms listed in the Nairobi securities exchange in Kenya. The research used both descriptive and inferential statistics to examine the major practices of creative accounting that influence financial performance of public companies listed in the Nairobi securities exchange in Kenya. The target population of this study was top management of public limited companies that is the CEO, directors, top managers and accountants. A sample of 30 public companies was drawn using purposive sampling. Logistic linear regression technique was used to analyze the relationship between creative accounting practices and financial performance and the correlation between the variables and financial performance. Quantitative approach through the use of questionnaires was adopted to help in the collection of primary data for analysis purposes. The secondary data was collected from NSE handbook relevant text books, finance journals, financial statements and the website of public limited companies that were be sampled. Statistical Package for Social Sciences Software (SPSS) was used in carrying out the multiple regressions to establish the relationship between creative accounting practices and financial performance and the correlation between the variables and financial performance. Financial performance was measured using earning after tax. The study found a strong relationship exists between creative accounting practices and financial performance. The study revealed that R2 was 0.633 meaning only 63.3% of the factors affecting financial performance among firms listed at the Nairobi Securities Exchange in Kenya as represented by the model while 36.7% was caused by other factors outside the model. Thus the study reveals that creative accounting practices have a significant effect on the financial performance of a company and most companies used it abusively hence resulting in most collapses of many firms.
Keywords: creative accounting, financial performance, tax avoidance, income smoothing, accelerated depreciation.
Title: Influence of Creative Accounting Practices on the Financial Performance of Companies Listed In the Nairobi Securities Exchange in Kenya
Author: VINCENT ONDARI NYABUTI, DR. FLORENCE MEMBA, CHRISTOPHER NJOROGE CHEGE
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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