Earnings Management Practices in Financial Reporting of Public Enterprises in India: An Empirical Test with M-Score (original) (raw)

The sweeping crisis of confidence in business and a widespread decline in users’ reliance in published financial statements in recent years imparted with a significant impetus for re-examination of financial estimation and reporting practices. This study explores the question of why unwarranted financial reporting irregularities can be so well hidden in published financial statements of business enterprises in general, and when the business is financially unsteady, in particular. With the help of published financial statements over the period from 2002-03 to 2012-13 of 25 enterprises of Manufacturing, Service, Mining, and Power sector of Public Enterprises in India, different elements are explored with different ratio metrics and statisticalprocess, and various symptoms of financial estimates and reporting irregularities are identified. In this study the red flags are uncovered using Beneish’s five variable M-Score model and shaded the light on the degree of variability between them in terms of earnings management practices. To validate the explanation of questionable changes and unusual relationship, different elements are identified through revealing a relationship between variables in terms of profitability, liquidity, and Assets Turnover of the respective enterprises. It appears that public enterprises in India with strong profitability signals generally do engage in managing its earnings while reporting the financial statements. The study found that earnings management practices have a negative relation with the profitability and positive relation with liquidity position and there is no significant difference exist in the variability predicting benchmark in different enterprises during the study period in terms of earnings management practices in public enterprises in India.

Sign up for access to the world's latest research.

checkGet notified about relevant papers

checkSave papers to use in your research

checkJoin the discussion with peers

checkTrack your impact