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Earnings Management to Avoid Losses: Evidence from India

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  • Rachappa Shette

    (Indian Institute of Management Kozhikode)

Abstract

The present study examine whether Indian corporates undertake earnings management methods to avoid earnings losses. First, this paper provides evidence that firms manage reported earnings to avoid losses in India. Second, the results indicate that two components of earnings, cash from operations and changes in working capital, are used to achieve increases in earnings. The robustness of the results is examined under various scenarios. The results are consists with existing literature. The present study support two theories based on stakeholder’s use of informationprocessing heuristics and prospect theory about the motivation for avoidance of earnings losses. The results are useful to regulators, investors and financial analysts

Suggested Citation

  • Rachappa Shette, 2018. "Earnings Management to Avoid Losses: Evidence from India," Working papers 255, Indian Institute of Management Kozhikode.
    • Handle: RePEc:iik:wpaper:255
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    References listed on IDEAS

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    2. Yaping Wang & Shaw Chen & Bing-Xuan Lin & Liansheng Wu, 2008. "The frequency and magnitude of earnings management in China," Applied Economics, Taylor & Francis Journals, vol. 40(24), pages 3213-3225.
    3. David Burgstahler & Michael Eames, 2006. "Management of Earnings and Analysts' Forecasts to Achieve Zero and Small Positive Earnings Surprises," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(5‐6), pages 633-652, June.
    4. Gilliam, Thomas A. & Heflin, Frank & Paterson, Jeffrey S., 2015. "Evidence that the zero-earnings discontinuity has disappeared," Journal of Accounting and Economics, Elsevier, vol. 60(1), pages 117-132.
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    8. David Holland & Alan Ramsay, 2003. "Do Australian companies manage earnings to meet simple earnings benchmarks?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 43(1), pages 41-62, March.
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    10. Bjorn N. Jorgensen & Yong Gyu Lee & Steve Rock, 2014. "The Shapes of Scaled Earnings Histograms Are Not Due to Scaling and Sample Selection: Evidence from Distributions of Reported Earnings per Share," Contemporary Accounting Research, John Wiley & Sons, vol. 31(2), pages 498-521, June.
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    Cited by:

    1. Susana Callao & José I. Jarne & David Wróblewski, 2019. "A New Perspective on Earnings Management in Emerging European Countries: Investigation on Environmental Factors that Explain Differences in Earnings Management," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 7(2), pages 59-81.
    2. Naser Abdelkarim & Khaled Zuriqi, 2020. "Corporate Governance and Earnings Management: Evidence from Listed Firms at Palestine Exchange," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(2), pages 200-217, February.

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