Institutional Investor Activism and Earnings Management in Nigerian Listed Firms

This study examines the relationship between institutional investor activism and earnings management in Nigerian listed firms over the period 2010–2024. Drawing on agency theory, stewardship theory, and institutional theory, we argue that active institutional investors serve as effective monitors of managerial discretion, thereby constraining opportunistic earnings manipulation. Using an ex-post facto research design and panel regression analysis on a sample of 151 firms listed on the Nigerian Exchange Group (NGX), we investigate whether institutional investor activism—measured through ownership concentration, shareholder proposal frequency, and board representation—significantly reduces earnings management, proxied by discretionary accruals estimated via the modified Jones model. We control for firm size, firm age, board size, board independence, industry type, financial leverage, and ownership structure. The results reveal that institutional investor activism exerts a statistically significant negative effect on earnings management, suggesting that activist institutional investors effectively discipline managerial behavior in the Nigerian corporate environment. Board independence and firm size also demonstrate significant constraining effects on earnings manipulation, while financial leverage exhibits a positive association, indicating that highly leveraged firms are more prone to earnings management. The findings are robust to alternative specifications, endogeneity checks, and post-estimation diagnostics. This study contributes to the sparse literature on investor activism in emerging African economies, provides empirical evidence that challenges the passive investor hypothesis in developing markets, and offers practical implications for regulators, corporate boards, and institutional investors seeking to enhance financial reporting quality in Nigeria.