Abstract:
Earning management or manipulation has been that has been used for a long time by the
management of various firms to adjust financial reports to meet certain objectives. This practice has
been used even for fraudulent and selfish activities. The purposes of the research were to ascertain
the levels of earning manipulations and financial distress of non-banking firms listed in Nairobi
securities exchange. The latest financial statements were used as the source of information. The
Beneish five-variable model was used to determine the presence of earning manipulations. Altman’s
Z-Score was used to test the financial distress. The analysis revealed that 58.3% of the firms were not
involved in earning manipulations. Further data showed that 41.7% of the analysed firms were in
financial distress. The study recommends restitutions by fraud perpetrators through earning
manipulations, change of auditors approach to certification of financial reports by including ratios
calculations and financial bailout by the government and owners of the businesses in case of financial
distress based on economic hardships.
