 Earnings management in India: Managers’ fixation on operating profitsNeerav Nagar and Kaustav Sen Journal of International Accounting, Auditing and Taxation, 2016, vol. 26, issue C, 1-12 Abstract: We present evidence that the managers of Indian firms fixate on operating profits, and thus manage such earnings. Specifically, they shift operating expenses to income-decreasing special items in order to inflate operating earnings (McVay, 2006. The Accounting Review, 81(3), 531). We also shed light on another form of classification shifting and find that the managers of Indian firms also engage in netting income-increasing special items against the core expenses in order to inflate core earnings. Given the environment of comparatively weaker corporate governance and investor protection, our results suggest that the magnitude of classification shifting is much more in Indian firms as compared to firms in the United States and East-Asian countries. We also find financial distress to be an important firm characteristic that is likely to influence the managers to engage in classification shifting, and find that financially distressed firms are more likely to engage in both types of classification shifting. Keywords: Earnings management; Classification shifting; Income netting; Special items; Financial distress; Indian companies (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jiaata:v:26:y:2016:i:c:p:1-12 DOI: 10.1016/j.intaccaudtax.2016.02.003 Access Statistics for this article Journal of International Accounting, Auditing and Taxation is currently edited by R. Larson More articles in Journal of International Accounting, Auditing and Taxation from Elsevier |
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