Earnings Management and Equity Issue Firms: A Study in Indian Context

Abstract

The purpose of this paper is to empirically investigate about the engagement of firms in earnings management at the time of issuing equity. Furthermore, we examined if firms issuing domestic equity (IPO) indulge in higher earnings management than firms issuing overseas equity. To estimate the earnings management, accrual-based earnings management (Dechow et al., 1995) model and real earnings management (Roychowdhury, 2006) model are used respectively. The initial results suggest that Indian companies undertake both accrual-based earnings management and real earnings management. The empirical results find that equity issue firms indulge in both accrual-based earnings management and real earnings management during the time of offering equity. Moreover, we found that domestic equity issue firms manipulate more accrual-based earnings management as well as real earnings management than overseas equity issue firms.