Abstract:
This study aimed to assess the impact of earnings management on investment efficiency
in Tanzania. The study was guided by positivism philosophy and Agency Theory. The
study employed a quantitative research approach and a correlational research design. The
purposive sampling strategy was used. The study's sample consisted of 5 manufacturing
firms listed at DSE, and non-probability purposive sampling was employed. The study
used the ordinary least squares (OLS) regression model to generate the coefficients. The
results showed that sales growth had a positive effect on investment efficiency. This effect
was statistically significant at the 1% level, which means that if sales growth went up by
1%, investment efficiency would go up by 45.7%, all other factors remaining the same
(p<0.000). However, the return on assets had a positive influence on investment efficiency
but was statistically insignificant. Conversely, while the trade payable outstanding had a
positive impact on investment efficiency, it was statistically insignificant. The study
concludes that sales growth can be used in earnings management, but the benefits are
limited as long-term firms cannot maintain higher sales, which ultimately affects the
investment efficiency of the manufacturing firms. The study also concludes that the
statistical insignificance of return on assets and trade payables suggests that using these
variables in earnings is not justified due to their minimal impact on investment efficiency.
The study recommends that regulators and stock exchanges should implement stricter
regulations for manufacturing to prevent earnings management practices, which could
potentially mislead investors and analysts when using financial statements for decision making. an investigate the impact of firm size on earnings management.
