This study aimed at examining the factors influencing earnings management among
companies listed in the Nairobi Securities Exchange. The prevalence of Earnings
Management (EM) in most organizations has been a matter of concern to many players
in the accounting sector around the globe. In the Kenyan context, listed companies have
been experiencing poor management practices attributed to EM. Whereas other studies
assessed in this research did not focus on the extent to which earnings management is
practiced in the Kenyan environment, this study bridges the knowledge gap and provides
an in-depth review on the subject. The thesis adopted both explanatory and descriptive
research designs. Both secondary and primary data were analyzed and presented using
descriptive statistics , non- parametric analysis, univariate analysis and multivariate
analysis. The thesis upholds that the extent to which EM was practiced fluctuated from
36.13% (in 2010) to 29.55% (in 2014), with the highest being in 2013 (47.32%). The
main techniques used in perpetrating the practice were found to be manipulation of
revenue amount, cash flow amount, and accounts receivable. Controlling the outcome of
inventory valuation was also found to be a major technique. The main factors that
influenced the extent to which EM was practiced included; free cash flow, size of debt in
a company, management bonus and dividend paid. The study contributes to the
knowledge on the extent to which EM is practiced in the listed firms and provides a
basis for other scholars seeking to undertake research on earnings management. The
study also gives pertinent recommendations to key stakeholders in the accounting
profession on how to identify and mitigate instances of EM. External and internal
auditors are advised to be more skeptical in analyzing financial statements and lay more
emphasis on financial statement items that are prone to manipulation. Since the study
used the Yoon's model to determine the presence of EM, the findings on extent of EM
were limited to this model.