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Impact of earnings management on working capital management efficiency

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  • Sawarni, Kumar Sanjay
  • Narayanasamy, Sivasankaran
  • Padhan, Purna Chandra

Abstract

This study investigates the impact of earnings management (EM) on the efficiency of Working Capital Management (WCM) and its components. The study uses M-Score, based on the Beneish Model, as a proxy for EM and applies generalized method of moments and panel quantile regression methods to a sample of 461 Indian-listed firms. We find that EM may inversely influence the WCM efficiency of Indian firms. Managers who engage in EM tend to operate on longer cash conversion cycle and manage inventory sub-optimally. These findings have been further confirmed by using an alternative EM proxy based on the Modified Jones Model.

Suggested Citation

  • Sawarni, Kumar Sanjay & Narayanasamy, Sivasankaran & Padhan, Purna Chandra, 2023. "Impact of earnings management on working capital management efficiency," Finance Research Letters, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:finlet:v:54:y:2023:i:c:s1544612323001514
    DOI: 10.1016/j.frl.2023.103778
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