Factors affecting earnings management and discretionary accruals a study on select indian companies

Abstract

Over the years, earnings management has been a contentious issue in the literature of Accounting and Finance. Some have defined earnings management as the rational choice of accounting policies by managers which sub serves certain specific interests. Earnings management, as believed by many, is a tool for manoeuvring reported income by managers either to attract a favourable investor s response in financial market to prevent plummeting of stock prices or to trigger a higher expectation of investors before an IPO. Some opines that earnings management is creative uses of accounting policies and guidelines to understate or overstate reported income. The earnings management definitions have been classified as black , grey and white. The black style indicates the manipulative feature of earnings management, ignoring any creative aspect of it. On the contrary, the white family of definitions indicate the intelligent aspect of it, ignoring the manipulation areas. The grey cluster of definitions majorly focusses on the intelligent part of earnings management but in tandem with the intention for manipulation. newline