Earnings manipulation and financial reporting in India

By Prof. Ajit Dayanandan,Associate Professor of Finance, University of Alaska, USA

Abstract: The present study examines in the Indian context whether companies which are likely to manipulate earnings indulge in greater earnings management. The study uses a sample of Nifty index Indian (35) firms listed in Indian stock exchanges for the period 2001-2015 which is the longest period studied so far. The study finds that earnings management as proxied by discretionary accruals as a percentage of total assets of previous period come to 2-3 per cent in Indian context which is relatively high compared with advanced countries like United States. Secondly, the study finds that most of the companies in the sample comes under the category of “earnings manipulator”. Thirdly, the study finds that companies which indulge in greater earnings manipulation indulge in higher earnings management. These findings raises question about the quality of earnings, earnings informativeness and fin

ancial reporting in India.

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