Internal corporate governance and cash flow manipulation

Neerav Nagar and Mehul Raithatha

International Journal of Emerging Markets, 2022, vol. 19, issue 6, 1645-1668

Abstract: Purpose - The authors examine whether internal corporate governance mechanisms are effective in curbing cash flow manipulation through real activities, misclassification, and timing. Design/methodology/approach - The sample comprises of firms from an emerging market, India with data for years 2004 through 2015. The authors use the methodology given in Roychowdhury (2006). Findings - The authors find that corporate boards in India play an active role in curbing cash flow manipulation through real activities but fail to control cash flow manipulation through misclassification and timing. Practical implications - The study suggests that corporate boards should pay more attention to the reported cash flow numbers. Regulators can reduce the opportunities available for cash flow misclassification by fixing relevant accounting and governance norms. Auditors can also help by critically focusing on the cash flow classifications presented by management. Originality/value - This study, to the authors’ knowledge, is the first study that talks about the role of internal governance in a trade-off between different cash flow manipulation techniques.

Keywords: Board of directors; Cash flow manipulation; Corporate governance; Real activities manipulation (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-01-2022-0044

DOI: 10.1108/IJOEM-01-2022-0044

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