COVID-19 Pandemic and Earnings Management: Evidence from Non-Financial Firms in Tanzania and Kenya.

Abstract

This paper examines the impact of COVID-19 on
accrual-based earnings management (AEM) in
Kenya and Tanzania, two countries with similar
economies but different pandemic responses. Using
a panel data regression model on 43 non-financial
firms listed on the Nairobi and Dar-es-Salaam
Stock Exchanges, covering 344 firm-year
observations, the study analyzed the relationship
between a COVID-19 dummy variable and absolute
discretionary accruals (Abs_[DAC]). The 2017-
2019 period is defined as "pre-pandemic" and
2020-2022 as "pandemic." The results show an
insignificant positive relationship between COVID19 and Abs_[DAC] across the sample, indicating
no statistically significant impact on AEM for both
Kenyan and Tanzanian firms. However, a
significant negative relationship was found for
Kenyan firms, suggesting a reduction in AEM,
likely due to stringent lockdowns and economic
uncertainty. These findings provide insights for
investors and policymakers on how pandemicresponse policies influence financial reporting.
Future research could explore alternative earnings
management measures and account for differences
in economic conditions and regulations.