The role of corporate governance in ensuring the quality of earnings: Empirical evidence from the emerging market

Abstract

The separation of decision-making and risk-bearing function in a dispersed ownership structure offers a possibility for the opportunistic conduct of managers (Shleifer & Vishny, 1997). Hence, it necessitates a proactive governing mechanism for the protection of shareholders as well as stakeholders’ interest in an organization (Xie et al., 2002). The pivotal objective of the paper is to analyze the effectiveness of corporate governance (CG) in reducing earnings management practices in listed Indian firms. The sample of 270 listed Indian firms in the National Stock Exchange of India (NSE) throughout 9 years from 2007–2008 to 2015–2016 was analyzed using the SmartPLS. From the major findings of statistical analysis using path coefficients, it has been observed governance through ownership and board committees (audit, compensation risk committees) is statistically insignificant in controlling earnings management (Biswas et al., 2022). In addition, the results revealed that board structure, activities, characteristics, and environmental, social, and governance (ESG) disclosures have a significant negative impact on discretionary accruals measured through the modified Jones model.

Keywords: Earnings Management, Corporate Governance, Corporate Finance, Investor Protection

Authors’ individual contribution: Conceptualization — S.A.B.; Methodology — S.A.B. and F.P.; Software — F.P.; Validation — F.P.; Formal Analysis — S.A.B.; Resources — S.A.B.; Data Curation — S.A.B. and F.P.; Writing — Original Draft — S.A.B. and F.P.; Writing — Review & Editing — S.A.B. and F.P.; Supervision — F.P.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G21, G300, G320, M48

Received: 23.08.2022
Accepted: 21.03.2023
Published online: 24.03.2023

How to cite this paper: Busru, S. A., & P, F. (2023). The role of corporate governance in ensuring the quality of earnings: Empirical evidence from the emerging market. Corporate Governance and Sustainability Review, 7(1), 21–33. https://doi.org/10.22495/cgsrv7i1p2