Financial Distress, Earnings Benchmark and Earnings Management Practices

Karan Gandhi

Vision, 2024, vol. 28, issue 2, 171-192

Abstract: Prior research exhibits contradictory evidence on earnings management practices, both accrual and real, undertaken by the firms in state of financial distress. This study uniquely examines the issue in the presence of earnings-increasing earnings management motivation- meeting earnings benchmark of avoiding losses. For examining the issue, this study analyzes large panel data of Indian public companies for the period 2000–2016. The findings indicate prevalence of earnings-decreasing real earnings management practices, that is, decrease in overproduction and increase in spending on discretionary expenses, in financially distressed firms despite there being motivation to increase earnings to avoid losses. No evidence of accrual earnings management practices has been observed in such firms.

Keywords: Financial Distress; Earnings Management; Accrual Earnings Management; Real Earnings Management; Earnings Benchmarks (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sae:vision:v:28:y:2024:i:2:p:171-192

DOI: 10.1177/09722629211010978

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