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Investigating accrual and real earnings management of financially troubled Indian firms

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  • Sweta Tiwari
  • Chanchal Chatterjee

Abstract

This paper examines whether financially troubled Indian firms manage earnings (both accrual and real activity-based) in the light of newly adopted financial reporting practices (IND-AS) by considering 208 financially distressed non-financial firms from 2017 to 2021. The study uses multiple regression for analysis. The study reveals a significant linkage between financial distress and earnings management and this association varies across accounting and market-based measures of financial distress. Also, the intensity of financial distress influences the direction (upward or downward) of earnings management. Interestingly, we find a stronger association of financial distress with accrual-based earnings management than real activity-based earnings management. Results also exhibit that the earnings management of financially troubled Indian firms is higher during the COVID-19 pandemic period. The findings can help regulators and policymakers to design suitable policies to improve the quality of earnings reporting and constrain the possibility of earnings management.

Suggested Citation

  • Sweta Tiwari & Chanchal Chatterjee, 2023. "Investigating accrual and real earnings management of financially troubled Indian firms," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 13(5), pages 592-611.
    • Handle: RePEc:ids:afasfa:v:13:y:2023:i:5:p:592-611
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