DOES IFRS INFLUENCE EARNINGS MANAGEMENT? EVIDENCE FROM INDIA

Abstract

The issue of earnings management has always been a concern for the reliability of published accounting reports. Previous studies have shown that accounting standards add value to accounting information in the developed economy, but, remained silent about its benefits in the context of emerging economies. Although researchers earlier classified India as one of the countries with high levels of earnings management in the world, there were very few studies on earnings management in India with no inferences on influences of accounting standards on earnings management. With this background, India, being an emerging market, provides a unique opportunity to examine whether adoption of international standards, is associated with reduced earnings management, which is the objective of this study. For the purpose of analysis, regression model is used in this firm-level study. The results contradict most of the previous findings based on developed countries by indicating that firms adopting international standards (i.e., International Financial Reporting Standards or IFRS) are more likely to smooth earnings compared to non-adopting firms. These findings could prompt the regulators to think about the effectiveness of IFRS in reducing opportunistic earnings management in an emerging economy, like India, especially, when the Indian accounting standards are undergoing substantial changes with the convergence of IFRS in a phased manner. [PUBLICATION ABSTRACT]