Earnings management : the influence of peer group and the corporate governance intervention

Journal article


Banerjee, Ameet Kumar, Akhtaruzzaman, Md and Chatterjee, Soumen. (2024). Earnings management : the influence of peer group and the corporate governance intervention. Journal of Accounting Literature. pp. 1-19. https://doi.org/10.1108/JAL-06-2023-0102
AuthorsBanerjee, Ameet Kumar, Akhtaruzzaman, Md and Chatterjee, Soumen
Abstract

Purpose: Our study investigates the influence of peer performance on the earnings management decisions within publicly traded Indian companies. There is mixed evidence in the literature, with the impact of peer performance on earnings management in emerging markets being notably underexplored. Additionally, the study explores whether robust corporate governance mechanisms can mitigate earnings management practices. Our study offers policy insights into these areas.

Design/methodology/approach: Our study used a longitudinal panel dataset from 2011 to 2020, utilising idiosyncratic returns of peer firms as an external measure of peer performance. This approach is further enhanced by the usage of alternative discretionary accrual metrics, which could be a robust measure for both market leaders and followers.

Findings: Our study employs two distinct methods, accrual and real earnings management, to assess earnings management. The findings indicate that peer performance triggers earnings management within peer groups, showcasing managerial opportunism in financial reporting to align with peer achievements. Furthermore, the evidence suggests that robust corporate governance effectively curtails earnings management, especially in industries where peer influence is significant.

Practical implications: Our study offers valuable insights for regulators, highlighting that enhancing the institutional framework with stringent corporate governance mechanisms can effectively reduce earnings management in companies within emerging markets.

Originality/value: The paper is a novel attempt in emerging markets to show that managers engage in opportunistic reporting to align with the performance of their peers and that governance strategies effectively mitigate these practices in such markets.

KeywordsPeer performance; Earnings management; Corporate governance; Emerging markets
Year01 Jan 2024
JournalJournal of Accounting Literature
Journal citationpp. 1-19
PublisherEmerald Group Publishing Limited
ISSN2452-1469
Digital Object Identifier (DOI)https://doi.org/10.1108/JAL-06-2023-0102
Web address (URL)https://www.emerald.com/insight/content/doi/10.1108/JAL-06-2023-0102/full/html
Open accessPublished as non-open access
Research or scholarlyResearch
Page range1-19
Publisher's version
License
All rights reserved
File Access Level
Controlled
Output statusPublished
Publication dates
Online21 May 2024
Publication process dates
Accepted20 Mar 2024
Deposited02 Oct 2024
Additional information

© Emerald Publishing Limited

Place of publicationUnited Kingdom
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https://acuresearchbank.acu.edu.au/item/90yz3/earnings-management-the-influence-of-peer-group-and-the-corporate-governance-intervention

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