Al-Hikmah University Journal

The study investigated impact of firm leverage on earnings management of companies. An assessment of listed pharmaceutical companies in Nigeria. The population of the study consists of 10 pharmaceutical companies quoted on the floor of the Nigerian Stock Exchange as at 31st December 2020. A sample of seven (7) pharmaceutical companies were selected from the population using judgmental sampling techniques based on data availability. Secondary data from the financial results of the sampled companies between 2011-2020 was used. Earnings Management (dependent variable) was determined using earnings growth (EG) as a metric, debt financing ratio (DF) and equity financing ratio (EF) was used as proxy for firm leverage. Descriptive, analysis of variance and multiple regression were used to analyze the data obtained. The study revealed the coefficient of DF for pharmaceutical companies was (1.880) respectively with p-values of (0.000). EF has coefficient of 1.141 and probability-value of 0.000. The study discovered that debt financing ration and equity financing ratio have a strong effect on earnings management of selected pharmaceutical companies.The result of the model summary of regression indicates 0.66 of firm leverage can only be used to predict 66% of the movement in earnings growth (EG). In light with this status-quo, the conclusion drawn from these findings is that leverage structure remains relevant in mitigating earnings management and therefore recommended that the debt financing and the equity financing should be employed by managers and professional financial analyst in such a way that the cost of borrowing do not outweigh firms’ returns so as to meet the overall firms’ objective of shareholders wealth maximization.