Corporate Life Cycle and Classification Shifting in Financial Statements : Evidence from Quoted Manufacturing Firms in Nigeria

The study investigated the relationship between corporate life cycle and classification shifting in the financial statements of quoted conglomerates in Nigeria. Using ex-post facto research design, the population of the study was drawn from quoted manufacturing firms on the Nigerian Stock Exchange (NSE). The study was delimited to manufacturing companies using purposive sampling method. The study relied on secondary data; obtained from annual financial reports and accounts of the selected companies. The data were analyzed using descriptive and inferential statistics. The hypotheses were tested using multiple regression techniques. The Dickinson’s (2011) approach was used to determine the life-cycle stage of a firm; while, the McVay (2006) model modified by Athanasakou, Strong, and Walker (2011) was used to calculate core earnings. The study finds a significant negative relationship between life cycle and unexpected core earnings; however, firm size was positive and significant. Thirdly, the cash flows had a non-significant negative relationship with unexpected core earnings. The study, therefore, recommends that capital market regulators should strengthen mechanisms aimed at monitoring the opportunistic behavior of managers. Auditors should be wary of a firm's life-cycle as this may provide an incentive for managers to engage in real earnings management. Cash flow information should be used by investors to gauge the liquidity and working capital posture of their firms because of its less subjective appeal to accrual earnings management