Unveiling the connection: R%D expenditure and earnings management in Indian pharmaceutical sector

Sushma Vishnani, Meena Bhatia and Nidhi Singh

International Journal of Managerial and Financial Accounting, 2026, vol. 18, issue 3, 367-386

Abstract: This study unveils the connection between research and development (R%D) spending and earnings management (EM) practices for pharmaceutical companies in India. It examines this connection through two models: the accruals model and the real activities-based EM through the real activities' modification model. The modified Jones model is utilised to evaluate accruals-based earnings management, and multiple regression modelling is used to examine the impact of R%D expenditure on discretionary accruals. The data for the study is from 2015-2023, with 504 firm-year observations. Research findings confirm the existence of accrual-based EM and a significant indication of real EM by pharmaceutical companies using discretionary R%D expenditure. The outcomes are relevant to researchers probing R&D's implications and scholars studying earnings management. They are also pertinent for regulators concerned about EM practices and other stakeholders investigating firms' financial reporting practices with substantial R%D expenditure.

Keywords: earnings management; accruals-based earnings management; pharmaceuticals; discretionary accrual; real earnings management; reporting quality; India. (search for similar items in EconPapers)
Date: 2026
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