Linking earnings management practices and corporate governance system with the firms' financial performance: a study of Indian commercial banks

Author(s):

PRITY KUMARI ( Indian School of Mines Dhanbad India )

Jamini Kanta Pattanayak ( Indian School of Mines Dhanbad India )

Citation:

PRITY KUMARI, Jamini Kanta Pattanayak, (2017) "Linking earnings management practices and corporate governance system with the firms' financial performance: a study of Indian commercial banks", Journal of Financial Crime, Vol. 24 Issue: 2, pp.-, doi: 10.1108/JFC-03-2016-0020

Downloads:

The fulltext of this document has been downloaded 51 times since 2017

Abstract:

Purpose

In the shadow of global financial crisis, practice of earnings management can be hazardous for the growth and development of an economy especially for a developing economy like India. This empirical study is performed to analyse the presence of earnings management practices in Indian public and private commercial banking industry. This study also aims at developing a framework for the three-way relationship existing between the variables of corporate governance, earnings management practices and firm performance

Design/methodology/approach

Data have been collected for a period of 11 financial years (2003-2013) from Prowess (CMIE) 4.14 database. A bank based accrual model has been used for calculating earnings management practices. OLS regression has been used for analysing degree of interdependence among variables of corporate governance, earnings management practices and financial performance.

Findings

The analysis supports the fact that there is the existence of income increasing earnings management practices in Indian commercial banks. It is also observed that corporate government practices (Viz. board characteristics, audit practices and performance based remuneration) basically work as restricting variables for earnings management practices. It is evident from the analysis that market based firm performance variables (Viz. PE ratio, yield and PAT) are significantly related to earnings management and corporate governance system.

Practical implications

The finding of this study will help in monitoring and controlling fraudulent earnings management practices existing in Indian commercial banks.

Originality/value

This study is the initial research about the presence of earnings management practices in Indian commercial banks.

Publisher:

Emerald Group Publishing Limited

Copyright:

© Emerald Group Publishing Limited 2017
Published by Emerald Group Publishing Limited