Earnings management, firm performance, and the value of Indian manufacturing firms
Originally Published In
International Research Journal of Finance and Economics
The purpose of this study was to test whether the practice of earnings management that affects and perhaps benefits management of Indian companies has an effect on a firms’ performance, and whether earnings management has an effect on other stakeholders. This study applied a co-relational research design. A sample of 250 firms was selected from Top 500 Companies listed on the Bombay Stock Exchange (BSE) for a period of 4 years (from 2009-2012). The findings of this study indicate that the more intense the practice of earnings management, the greater it’s adverse effect on corporate rate of return on assets in the following year. The study also found that to some extent, the market realizes that management acts with selfish motives and responds by lowering share prices and corporate market value. This study contributes to the literature on the association between several features of earnings management and firm performance, and the value of the firm. It is confined to Indian firms where companies perform intense earnings management. The findings may be useful for financial managers, investors, financial management consultants, and other stakeholders.