EARNINGS MANAGEMENT IN SMALL AND MEDIUM FIRMS IN INDIA – AN EMPIRICAL ANALYSIS OF FIRM-SPECIFIC INFLUENCES

The purpose of this study is to provide some empirical evidences about the existence of earnings management in small and medium firms in India and the firm-specific factors affecting that. In this paper, earnings management has been measured following Jones (1991) model. Five independent variables, namely auditor's reputation, proportion of independent directors in the board, quantum of bank loan, proportion of institutional holding and ESOP were used in this study. The dependent variable was discretionary accruals. Panel data regression, enter method and stepwise regression method were used to analyse the relationship of the variables. Almost all independent variables were found to be significant except ESOP. While auditor's reputation and institutional holding were negatively correlated with discretionary accruals, bank loan and independence of the board were positively correlated. The entire study was based on 331 firm years data of small and medium Indian firms from 2013 – 2018.