Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.6, No.9, 2015 106 Do Banks in Nigeria Manage Earnings through Loan Loss Provisions? Ibrahim Labaran Ali (ACA) Department of Economics and Management Science, Nigerian Defence Academy, Kaduna Abstrct The financial reporting scandals that was recorded in Enron, Cadbury Nigeria and some banks like Oceanic bank, International bank and Afribank has prompted researchers and regulators to investigate the incidence of earnings management in Nigeria and abroad.The main objective of this study is to investigate whether banks in Nigeria manage their earnings through the use of loan loss provisions.Data was collected from the fact book of The Nigerian Stock Exchange and published financial statements of 11 banks. The study used a one sample T-Test, Descriptive statistics and pooled linear regression model which was estimated using an ordinary least squares procedure and employing Statistical Package for Social Science Programme to analyse the data collected. The result reveals that earnings management management through the use of loan loss provision is present in Nigeria banks. The study recommends that regulatory agencies responsible for meintaining finanicial reporting quality like the SEC, CBN and FRC should device a means of monitoring financial statements of reporting organisations (banks in particular) quaterly. Keywords: Audit Committee, Financial Expert, Earnings Management, Banks, Nigeria 1.0 INTRODUCTION A common feature of the corporate form of business is the separation between ownership and control (Sanda, Minkailu and Garba, 2004). Some of the owners of the businesses lack the time or skills to run the business so they appoint managers and saddle them with the responsibility of directing the business profitably to create value for its owner and other stakeholders. Due to the fact that owners are usually not involved or present in the running of the business, it will be difficult for them and other interested stakeholders to value the assets and liabilities of the business accurately. Managers on their own part might not be sincere enough to present the true picture of the performance and profitability of the business but are allowed to apply their own discretion to make judgment within the Generally Acceptable Accounting Principle (GAAP) on some accounting related issues like stock valuation, estimating depreciation, amount to be set aside as provision against bad debt and warranty expenses (Bagnoli & Watts, 2005). Nonetheless, researchers and regulators have raised concerns over the use of these managerial discretions in valuing items on the financial statement. For instance, Levitt (1998) expressed concerns on financial statement manipulation and its effect on resource allocation. He mentioned that management abuse of premature revenue recognition is threatening the credibility of financial statement. These abuses were reportedly practiced by some organisations in the United States (Levitt, 1998). Consequently, in Nigeria, Kantudu (as cited in Nyor, 2010) in his study found that earnings of some deposit money banks are being smoothed. Subsequently, in 2010 the Central Bank of Nigeria (CBN)Governor lamented that part of the reasons for the banking crisis of 2008 was as a result of financial statement manipulation which is otherwise known as earnings management (Sanusi, 2010). In the light of the discuss, the main objective of this study is to investigate whether banks in Nigeria manage their earnings through the use of loan loss provisions. As ealier stated, earnings management has been found to be practiced through different method like stock valuation, research and development, loan loss provisioning etc. This study therefore seeks to investigate whether the discresions giving to managers on loan loss provision are used to manage earnings. The rest of the paper is structured as follows: Section 2 reviews the conceptual and empirical litrature on audit committee financial expert and earnings management. Section 3 discusses the methodology used for the study. In section 4, the result of the data analysed are presented and discussed. Section five concludes the study by making recomendations. 2.0 LITRATURE REVIEW 2.1 Concept of Earnings Management The literature has not provided a single definition of earnings management as different researchers have viewed earnings management from different perspectives base on which aspect of the financial statement is affected and who benefits from the earnings management. For instance, Mulford and Comiskey (2002) regards earnings management as an inter-period concept where some portion of earnings is moved from one period to the next. Here, earnings management is defined base on the present need and the future activities adjusted to suit the