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

Amit Mittal and Ajay Kumar Garg

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Discretionary Accruals; Earnings Management; GFC; Global Financial Crisis; Financial Reporting; Corporate Governance; India; CNX Nifty 100 (search for similar items in EconPapers)
JEL-codes: G10 G14 G20 G30 M41 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-bec and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/85353/1/MPRA_paper_85353.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/94514/1/MPRA_paper_94514.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/94741/1/MPRA_paper_94514.pdf revised version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:85353

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().