Is Earnings Management a Technique to Reduce Cost of Capital? Exploratory Study on Indian Companies

Abstract

Earnings management has attracted lots of academicians towards the research due to the emerging frauds and downfall of great corporate giants of the world. Mainly earnings measurement is based on the accounting estimates which managers can easily manipulate for their self-interest. The study investigates the relationship between cost of capital and the earnings measurement for the Indian firms. Measurement of earnings is mostly computed by taking either discretionary accruals (DAC) or non-discretionary accruals (NDAC). Present study has used Dechow, Sloan, and Sweeney (1995) model for earnings measurement and for analyzing the results. Panel data regression has also been used. Findings of the study conclude that DAC has a significant influence on cost of capital, but NDAC has no influence.