This study critically reviewed literature
on the relationship between working capital management and earnings management.
The specific objectives of the study included determination of documented
evidence on; the relationship between working capital management and earnings
management, the existence of target working capital management level and target
earnings management level and knowledge gaps between the two study variables.
Findings on the first objective were conflicting with some researchers establishing
a positive relationship, others a negative relationship whereas others were
non-conclusive. Findings on the second objective were also conflicting. The
divergence in findings were attributed to differences in conceptual,
methodological and contextual setups with inconsistencies in operationalization
of the study variables playing a pivotal role. The study revealed a biased
inclination towards usage of accounting accruals as proxies for earnings
management with no consideration for non-accounting accruals like real earnings
managements. The study also identified lack of related studies in frontier
economies as a potential research gap paving way for future related studies
with expanded scope. The study further recommended future research on
determination of an optimal working capital level that minimizes real earnings
JEL classification numbers: G10, G11, G30, G32, G33.
Keywords: Working capital management, Earnings management, Manufacturing.