ISO 9001:2015

Corporate Governance Quality And Earnings Management: Evidence From Bse-500

Swati Jain

Earnings are the powerful indicators of the firms’ business activities. Since a company’s stock is measured by the present value of its future earnings, investors and analysts look to earnings to determine the attractiveness of a particular stock. Companies with poor earnings prospects will typically have lower share prices than those with good prospects. So, Earnings management plays a key role to determine the share price of a company as well as direct resource allocation in capital market. It serves as a guide to senior management to reduce earnings management through the execution of corporate governance practices. This paper investigates the effect of corporate governance quality on earnings management in India. Using a panel data set of all industrial and service companies listed on BSE-500 during the period 2010-2011 to 2014-15; this paper provides evidence that earnings management is affected negatively by corporate governance quality. In particular; the results show that earnings management is affected negatively by overall categories of governance index represented by board of director, board meeting, audit and nomination and compensation committee. Furthermore, results suggest that corporate governance quality has increased over time. Thus, its ability to constrain earnings management has also increased. It is recommended to industrial and service companies to boost their compliance with corporate governance code to improve the integrity and reliability of financial reports. This paper fills a gap in the literature by providing evidence about the effect of corporate governance quality on earnings management in India as an emerging economy.


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