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Abstract

Earnings quality reflects the integrity and quality of financial reporting which minimizes the information asymmetry and agency conflicts among management, owners and the majority and minority shareholders. The issue of earnings quality has become a concern, especially in respect of the Nigerian oil and gas companies as an internal monitoring mechanism to ensure financial reporting quality. The objective of the study was to examine the significant relationship between the Nigerian oil and gas companies and earnings quality during the decline of oil prices in the world market based on the agency theory. The sample of the study was 20 companies drawn equally from the oil and gas and the non-oil and gas companies. Dummy variables 1 and 0 were assigned to both the oil and gas and the non-oil and gas companies respectively. The companies were selected from the Nigerian Stock Exchange for the period of 2014 to 2016 with a total of 60 observations. A discretionary accrual model based on the modified Jones model by Kothari et al. (2005) was used to examine earnings quality of the oil and gas sector. This study revealed a significant negative relationship between Nigerian oil and gas companies and earnings quality during the global decline in the prices of oil. The regression results showed other determinants of earnings management as control variables which included firm performance, financial leverage and firm size to have a significant impact on the earnings quality of the Nigerian oil and gas companies. The results of this study have implications for investors, regulators and market participants.

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