Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Does institutional ownership limit classification shifting: evidence from Indian firms

Does institutional ownership limit classification shifting: evidence from Indian firms Author investigates whether firms with institutional ownership limit classification shifting. Classification shifting is new technique of earnings management wherein managers misclassify line items of income statement to present favorable operating performance. Core earnings expectation model (McVay in Account Rev 81:501–531, 2006) is adopted for measuring expense shifting. Regression model is employed to analyze whether ownership structure affects expense classification shifting in Indian Firms. It is found that firms with institutional ownership are engaged in expense misclassification to inflate core earnings of the firms. Investors should be more observant for the ownership structure of the firm. Regulators and Accounting Professional Bodies should provide for more mandatory disclosure in order to eliminate such misclassification practices. Auditors should also look in detail in financial statements for detecting CS activity, which is less likely to be detected as it does not impact bottom-line earnings of the firm. The paper provides the literature on expenses misclassification and presents the evidence that firms with institutional ownership are engaged in classification shifting. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Disclosure and Governance Springer Journals

Does institutional ownership limit classification shifting: evidence from Indian firms

Download PDF
12 pages

Loading next page...
 
/lp/springer-journals/does-institutional-ownership-limit-classification-shifting-evidence-c1WiptQkie

References (73)

Publisher
Springer Journals
Copyright
Copyright © The Author(s), under exclusive licence to Springer Nature Limited 2022. Springer Nature or its licensor holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
ISSN
1741-3591
eISSN
1746-6539
DOI
10.1057/s41310-022-00163-3
Publisher site
See Article on Publisher Site

Abstract

Author investigates whether firms with institutional ownership limit classification shifting. Classification shifting is new technique of earnings management wherein managers misclassify line items of income statement to present favorable operating performance. Core earnings expectation model (McVay in Account Rev 81:501–531, 2006) is adopted for measuring expense shifting. Regression model is employed to analyze whether ownership structure affects expense classification shifting in Indian Firms. It is found that firms with institutional ownership are engaged in expense misclassification to inflate core earnings of the firms. Investors should be more observant for the ownership structure of the firm. Regulators and Accounting Professional Bodies should provide for more mandatory disclosure in order to eliminate such misclassification practices. Auditors should also look in detail in financial statements for detecting CS activity, which is less likely to be detected as it does not impact bottom-line earnings of the firm. The paper provides the literature on expenses misclassification and presents the evidence that firms with institutional ownership are engaged in classification shifting.

Journal

International Journal of Disclosure and Governance – Springer Journals

Published: Dec 1, 2022

Keywords: Earnings management; Classification shifting; Expense misclassification; Operating expenses; Institutional ownership

There are no references for this article.