Real earnings management’s effects on performance in firms reaching the loss avoidance threshold: indian evidence after controlling for variations in firm’s competitive strategy

IF 1.5 Q3 MANAGEMENT Decision Pub Date : 2024-08-16 DOI:10.1007/s40622-024-00393-0
Karan Gandhi
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Abstract

This study investigates the managerial intent—whether opportunistic or signaling—behind real earnings management (REM) actions taken to meet the loss avoidance threshold by examining their impact on future performance, whether negative or positive. The focus is on the impact of REM through overproduction, as well as selling, general, and administrative expenses (SGAX), both in aggregate and individually, on return on assets (ROA) and cash flow from operations (CFO). Additionally, the study delves into the impact of three components of SGAX, namely marketing expenses (MRKX), welfare and training expenses (WTX), and other general and administrative expenses (OGAX)—separately. To estimate REM proxies, this research utilizes Srivastava’s (2019) models, which account for variation in a firm’s competitive strategy. It applies panel regression analysis on observations from a sample frame consisting of 1444 non-financial enterprises spanning from 2005 to 2019. The findings reveal that firms motivated to meet the loss avoidance threshold and exhibiting REM, particularly through SGAX, experience a negative ROA in later years. The study observes similar implications for MRKX and OGAX. Furthermore, firms engaging in REM through OGAX witnessed unfavorable CFO implications. The study does not observe any impact of REM through overproduction and WTX on future performance. The robustness tests corroborate these findings, and additionally indicate that SGAX and WTX-focused REM negatively impact CFO, while overproduction-focused REM adversely impacts ROA. The results suggest that manager exercise REM opportunistically to avoid losses, highlighting the need for regulatory intervention to address the threshold mentality among Indian firms.

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实际收益管理对达到亏损规避门槛的公司业绩的影响:控制公司竞争战略变化后的印度证据
本研究通过考察实际收益管理(REM)行动对未来业绩的影响(无论是负面影响还是正面影响),研究了为达到避免损失阈值而采取的实际收益管理行动背后的管理意图(无论是机会主义意图还是信号意图)。研究的重点是通过超额生产以及销售、总务和管理费用(SGAX)对资产回报率(ROA)和运营现金流(CFO)的影响。此外,研究还深入探讨了销售、一般和管理费用的三个组成部分,即营销费用(MRKX)、福利和培训费用(WTX)以及其他一般和管理费用(OGAX)的单独影响。为了估算 REM 代用指标,本研究采用了 Srivastava(2019 年)的模型,该模型考虑了企业竞争战略的变化。研究对 2005 年至 2019 年期间由 1444 家非金融企业组成的样本框架中的观测数据进行了面板回归分析。研究结果表明,为达到避免亏损阈值并表现出 REM(尤其是通过 SGAX)的企业,其后几年的投资回报率为负值。研究发现,MRKX 和 OGAX 也有类似的影响。此外,通过 OGAX 参与 REM 的公司会受到不利的首席财务官影响。研究没有观察到通过过度生产和 WTX 进行 REM 对未来业绩的任何影响。稳健性检验证实了这些结论,并进一步表明,以 SGAX 和 WTX 为重点的 REM 对 CFO 有负面影响,而以超产为重点的 REM 对 ROA 有负面影响。这些结果表明,经理人为避免损失而伺机行使 REM,这凸显了监管干预的必要性,以解决印度企业的门槛心态问题。
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来源期刊
Decision
Decision MANAGEMENT-
CiteScore
2.30
自引率
0.00%
发文量
27
期刊介绍: The aim of the Journal, Decision, is to publish qualitative, quantitative, survey-based, simulation-based research articles at the national and sub-national levels. While there is no stated regional focus of the journal, we are more interested in examining if and how individuals, firms and governments in emerging economies may make decisions differently. Published for the management scholars, business executives and managers, the Journal aims to advance the management research by publishing empirically and theoretically grounded articles in management decision making process. The Editors aim to provide an efficient and high-quality review process to the authors. The Journal accepts submissions in several formats such as original research papers, case studies, review articles and book reviews (book reviews are only by invitation). The Journal welcomes research-based, original and insightful articles on organizational, individual, socio-economic-political, environmental decision making with relevance to theory and practice of business. It also focusses on the managerial decision-making challenges in private, public, private-public partnership and non-profit organizations. The Journal also encourages case studies that provide a rich description of the business or societal contexts in managerial decision-making process including areas – but not limited to – conflict over natural resources, product innovation and copyright laws, legislative or policy change, socio-technical embedding of financial markets, particularly in developing economy, an ethnographic understanding of relations at a workplace, or social network in marketing management, etc. Research topics covered in the Journal include (but not limited to): Finance and Accounting Organizational Theory and Behavior Decision Science Public Policy-Economic Insights Operation Management Innovation and Entrepreneurship Information Technology and Systems Management Optimization and Modelling Supply Chain Management Data Analytics Marketing Management Human Resource Management
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