Influence of Company Characteristics on Earnings Management in Group Affiliated and Standalone Firms: Evidence from India

Abstract

The study investigates the influence of company-specific characteristics, such as firm age, firm size, performance, leverage, capital intensity ratio, and assets growth, on earnings management. The study also examines the influence of such characteristics on earnings management in group-affiliated and standalone firms. The final sample consists of 248 companies listed on the Bombay Stock Exchange. The research takes place from 2012–2013 to 2018–2019. Signed discretionary accruals and signed discretionary current accruals are used as proxies for measuring earnings management. The findings show that the firm’s age, performance, and leverage are all positively associated with signed discretionary accruals. However, the capital intensity ratio has a negative relationship. Further, group firms are less likely to indulge in earnings management practices as compared with standalone firms. Also, the firm age and performance have positive relation, and capital intensity ratio has negative relation with signed discretionary accruals for group firms. In the case of standalone firms, firm size, performance, and leverage have a positive association whereas capital intensity has a negative association. The results of the present study give insight to financial analysts, regulators, investment analysts, credit rating agencies, etc., to keep an eye on manipulative reporting practices done by companies of different characteristics and ownership attribute.