Earnings Management and Business Groups: Evidence from India

In this paper we study the earnings management in affiliates of Indian business groups vis-a-vis unaffiliated firms. We investigate how business group affiliates differ from their standalone counterparts in opportunistic earnings management. This study is empirical in nature and considers panel data for five years spanning the period 2010 to 2014 and uses a sample of listed non-financial firms, while testing the earnings management issue. This paper provides evidence of insignificance of business group affiliation in earnings management. This study will be of great practical use for the practitioners, researchers and the policy makers in India in their quantification of ‘managed earnings’ and also helps them to be informed of the factors that affect earnings management in India. Compared to developed countries, the issue of earnings management seems to remain under-researched in developing countries. There is a need to focus more on the effect of company level factors on the earnings management. We try to add to the existing literature by performing a comprehensive study by giving evidence of existence of opportunistic earnings management in the Indian context and also the influence of a firm’s group affiliation on the earnings management.