Firm-specific Parameters and Earnings Management: A Study in the Indian Context

Das, Ramesh Chandra; Mishra, Chandra Sekhar; Rajib, Prabina

doi:10.1177/0972150918788748

Cited by 22 publications

(24 citation statements)

References 64 publications

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“…Such a claim suggests that companies with higher performance possess a higher tendency to manage the companies' earnings. This is proven in Das et al (2018) who found that firm performance, measured using return on assets (ROA), influenced both the accrual-based earnings management and real earnings management for 268 listed Indian manufacturing firms. Aygun et al (2014) also revealed that the ROA is statistically positive significant with earnings management among Turkish firms.…”

Section: Incidence Of Financial Restatementmentioning

confidence: 97%

“…The natural logarithm of the firm's years (Kibiya et al, 2016) PERFORM Ratio of ROA (Das et al, 2018) LEVERAGE Ratio of firm's total debt to the firm's total assets (Swai, 2016) LIQUID Ratio of firm's current assets to the firm's liabilities (Somayyeh, 2015) JFC 28,1 have a higher probability of committing financial statement fraud because of the pressure to perform on the management.…”

Section: Agementioning

confidence: 99%

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The effect of corporate governance and firm-specific characteristics on the incidence of financial restatement

Hasnan

Razali

Hussain

2020

JFC

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Purpose This paper aims to examine the effects of corporate governance and firm-specific characteristics on the incidence of financial restatement among Malaysian public listed firms. Design/methodology/approach The elements of corporate governance consist of board size, board independence, multiple directorships, audit committee expertise, external audit quality and executive compensation. Meanwhile, the firm-specific characteristics consist of firm age, firm performance, firm leverage and firm liquidity. The agency theory has been used to guide the study. This study used a matched-pair sample that consisted of a sample of 49 restatement firms and 98 non-restatement firms between the years 2011 and 2016. Univariate (t-test and Pearson correlation) and multivariate (logistic regression) statistical techniques were used to test the hypotheses. Findings The results show that there is a negative and significant relationship between executive compensation and firm performance, and the incidence of financial restatement. In addition, there is a positive and significant relationship between firm leverage and the incidence of financial restatement. However, the other corporate governance and firm-specific characteristic variables included in the study were found to be insignificant with the incidence of financial restatement. This paper provides evidence that some form of corporate governance mechanisms and firm-specific characteristics, particularly executive compensation, firm performance and firm leverage, may influence the direction and magnitude of the incidence of financial restatement. The findings indicate that optimal executive incentives may align management interests with those of shareholders. In addition, greater performance and lower leverage levels minimise firms’ financial pressure and debt covenant violation risk, which may reduce the management tendency to misstate the financial statement, and consequently, minimise the likelihood of financial restatement. Originality/value The main value of this paper is the effect of corporate governance and firm-specific characteristics on the likelihood of financial restatement in Malaysia. The findings of this study provide useful insights for regulators to improve and reconsider the current regulations on corporate governance mechanisms.

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Section: Incidence Of Financial Restatementmentioning

confidence: 97%

Section: Agementioning

confidence: 99%

The effect of corporate governance and firm-specific characteristics on the incidence of financial restatement

Hasnan

Razali

Hussain

2020

JFC

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“…These differences may be caused by the different economic situations in the analysed countries, as it is evident that the national environment, economic development, and growth do play a significant role. Das et al (2018Das et al ( , pp. 1240Das et al ( -1260 found that opportunities for corporate growth, financial performance, institutional ownership, and firm age influence earnings management behaviour negatively in Indian enterprises.…”

Section: Overall Assessmentmentioning

confidence: 99%

Quo Vadis, earnings management? Analysis of manipulation determinants in Central European environment

Valášková

Adamko

Michalíková

et al. 2021

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Research background: The paper investigates the earnings management phenomenon in the context of Central European countries, attempting to identify the factors and incentives that can influence earnings management behavior on a sample of 8,156 enterprises from Slovakia, the Czech Republic, Hungary, and Poland. Purpose of the article: The main purpose of the manuscript is to prove that there are significant differences in earnings management practices (measured by discretionary accruals) across the countries and to find the firm-specific features that influence the way enterprises manage their earnings. Methods: The modified Jones model was used to calculate the discretionary accruals, which are further analyzed across the countries. The statistically significant differences were confirmed across the countries. Thus, the impact of the economic sector, firm size, firm age, legal form, and ownership structure on earnings management behavior is studied by the Kruskal-Wallis test. The Dunn-Bonferroni post hoc tests then revealed the significant differences across the categories of the investigated earnings management determinants. To find the association between the particular earnings management practice (income-increasing or income-decreasing manipulation), correspondence analysis was used to visualize the mutual relations. Findings & value added: The results of the realized investigation revealed that the economic sector is one of the most important earnings management determinants, as its statistical significance was confirmed in each analyzed country. The correspondence analysis determined specific sectors, where income-increasing manipulation with earnings is practiced (NACE codes F, J, K, M, N), and vice versa, income-decreasing earnings management is characteristic for enterprises in sectors A, C, D, G or L. In specific economic conditions, firm size is also a relevant indicator (Hungary), or firm age and legal form and ownership structure (Poland). The recognition of crucial earnings management incentives may be helpful for authorities, policymakers, analysts and auditors when identifying various techniques and practices of earnings manipulation which could vary across the sectors and taking necessary measures to mitigate potential financial risks.

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“…Market returns depict the status of market at the time of issue and hence, to check the influence of market on the relation of listing day return and earnings management the study controls for market returns. A favourable market provide higher listing day returns to the investors as it increases the level of optimism among the investors and issuers (Chhabra et al, 2017;Das et al, 2018;Liu and Lyu, 2016;Lizinska and Czapiewski, 2018;Wijaya et al, 2020) thus, signalling a positive relation between market returns and listing day returns.…”

Section: Jaee 125mentioning

confidence: 99%

“…The size and age of the issuer are characteristics of the issuer that influence policy and the expectations a firm has for its public offering (Sun and Rath, 2009;Naz et al, 2011;Darmadi and Gonawan, 2013;Handa and Singh, 2015;Kouwenberg and Thontirawong, 2016;Bassiouny, 2016) whereas market variables such as time lag and market returns account for market fluctuations at the time of issue and listing (Liu and Lyu, 2016;Das et al, 2018;Chhabra et al, 2017;Lizinska and Czapiewski, 2018;Wijaya et al, 2020). Hence, the study controlled for their effect on listing day returns while determining the influence of earnings management.…”

Section: Descriptive Statistics: Control Variablesmentioning

confidence: 99%

Earnings management and listing day performance of IPOs in India

Mangala

Dhanda

2021

JAEE

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PurposeThe purpose of this study is to examine the influence of earnings management during initial public offerings on the listing day returns.Design/methodology/approachThe study collected data for 511 Indian IPOs that came between April 2003 and March 2019 for calculating earnings management. On the basis of the Cross Sectional Modified Jones Model 1995, the paper presents three proxies of earnings management as discretionary accruals (DA), discretionary current accruals (DCA) and discretionary long-term accruals (DLA). The study further used correlation and multiple regression analysis to assess the impact of earnings management on listing day returns.FindingsThe findings show that earnings management and listing day returns vary through issue-year and industry-type. Apart from it, the study reveals a greater contribution of short-term accruals in earnings management on the basis of higher DCA values. It also discloses that the aggregate level of earnings management (DA) influences listing returns, whereas DCA and DLA separately have no impact on the listing day returns of the Indian IPOs.Research limitations/implicationsThe findings are useful to potential investors and analysts to observe, assess and understand the quality of financial reports that are based on fallacious disclosure of accounting figures. The study also reflects the efficacy of Indian regulatory norms for IPOs in constraining earnings management and underpricing, thus providing meaningful insight to the policy makers and the regulators.Originality/valueThis study is distinguished by its focus on determining the influence of earnings management on listing day returns in Indian IPOs by using three earnings management proxies.

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Firm-specific Parameters and Earnings Management: A Study in the Indian Context

Cited by 22 publications

References 64 publications

The effect of corporate governance and firm-specific characteristics on the incidence of financial restatement

The effect of corporate governance and firm-specific characteristics on the incidence of financial restatement

Quo Vadis, earnings management? Analysis of manipulation determinants in Central European environment

Earnings management and listing day performance of IPOs in India

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