THE INFLUENCE OF EARNINGS MANAGEMENT ON THE INVESTMENT EFFICIENCY IN TANZANIA

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.