How do Indian firms cope with a crisis? Earnings management characteristics of CNX Nifty 100 companies

Mittal, Amit and Garg, Ajay Kumar (2019): How do Indian firms cope with a crisis? Earnings management characteristics of CNX Nifty 100 companies. Published in: Asian Journal of Finance and Accounting , Vol. 1, No. 11 (1 June 2019): pp. 220-240.

Abstract

An analysis of Indian CNX Nifty 100 companies across the last two recessions or the Global Financial Crises highlights practices of earnings management. The crisis response uncovers the perils of opportunistic earnings management as crises affect balance sheets in FY2007 and FY2012. The study proves indications of Performance measurement hypothesis yet primarily only Opportunistic accruals with negative correlation between Post crisis and precrisis accruals and accruals increasing in the post crisis year. Operating accruals of the firm are synonymous with its Working Capital investment. These translate into dependencies on Working Capital investments to finance growth. Earnings management impairs a firm’s ability to smoothen earnings during a continued crisis. It instead resonates with the build-up of cookie jar reserves in the bigger companies and those that invest in Corporate Governance. The presence of negative accruals may show effects of high growth and slack corporate governance. Banking firms respond with a more sophisticated earnings management strategy where Loan Loss provisions significantly increase with increase in Cash profits.

• Item Type: MPRA Paper
• Language: English
• Keywords: Discretionary Accruals, Earnings Management, GFC, Global Financial Crisis, Financial Reporting, Corporate Governance, India, CNX Nifty 100
• Subjects: G - Financial Economics > G1 - General Financial Markets > G10 - General; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; G - Financial Economics > G2 - Financial Institutions and Services > G20 - General; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting

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