Financial reporting quality of private and public banks in India

Abstract

The present study compares the earnings management practices amongst the Indian private and public sector banks using the second digit test, one of the primary Benford law tests. The sample consists of data on five variables: interest income, other income, interest expenses, deposits, and loans and advances from 14 private and 17 public sector banks for Q1 2005-Q4 2018. Deposit turns out to be the most misreported financial figure for the private banks while public sector banks misrepresented loans and advances the most. Overall, the public sector banks seem to be more into rounding up behaviour as compared to the private banks. We also explored possible linkages between financial manipulations and a CEO's tenure approaching its completion and observed evidence in support of this argument.