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Does good corporate governance constrain cash flow manipulation? Evidence from India

Does good corporate governance constrain cash flow manipulation? Evidence from India <jats:sec> <jats:title content-type="abstract-subheading">Purpose</jats:title> <jats:p>The purpose of this paper is to examine whether firm-level corporate governance measures and regulatory reforms constrain manipulation of operating cash flows, an important firm performance indicator.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title> <jats:p>The sample comprises firms from an emerging market, India, with data from 2005 to 2011. The authors use the methodology given in the paper by Lee (2012) and multiple regressions.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Findings</jats:title> <jats:p>The authors find that cash flow manipulation is likely to increase with an increase in the controlling ownership. Furthermore, board diligence and better audit fail to curb such manipulation. However, the authors do find that such manipulation has gone down in the recent years, and diligent boards constrain it, possibly due to the recent steps taken by the Indian Government for improving the corporate governance environment in India.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Practical implications</jats:title> <jats:p>The findings can act as feedback for the regulators and policy makers. Potential investors and analysts may also benefit from the study, since they can be more vigilant about the firms’ cash flow manipulation practices and can demand better governance.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Originality/value</jats:title> <jats:p>The findings suggest that good corporate governance makes managers substitute earnings management with cash flow manipulation.</jats:p> </jats:sec> http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance CrossRef

Does good corporate governance constrain cash flow manipulation? Evidence from India

Managerial Finance , Volume 42 (11): 1034-1053 – Nov 14, 2016

Does good corporate governance constrain cash flow manipulation? Evidence from India


Abstract

<jats:sec>
<jats:title content-type="abstract-subheading">Purpose</jats:title>
<jats:p>The purpose of this paper is to examine whether firm-level corporate governance measures and regulatory reforms constrain manipulation of operating cash flows, an important firm performance indicator.</jats:p>
</jats:sec>
<jats:sec>
<jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title>
<jats:p>The sample comprises firms from an emerging market, India, with data from 2005 to 2011. The authors use the methodology given in the paper by Lee (2012) and multiple regressions.</jats:p>
</jats:sec>
<jats:sec>
<jats:title content-type="abstract-subheading">Findings</jats:title>
<jats:p>The authors find that cash flow manipulation is likely to increase with an increase in the controlling ownership. Furthermore, board diligence and better audit fail to curb such manipulation. However, the authors do find that such manipulation has gone down in the recent years, and diligent boards constrain it, possibly due to the recent steps taken by the Indian Government for improving the corporate governance environment in India.</jats:p>
</jats:sec>
<jats:sec>
<jats:title content-type="abstract-subheading">Practical implications</jats:title>
<jats:p>The findings can act as feedback for the regulators and policy makers. Potential investors and analysts may also benefit from the study, since they can be more vigilant about the firms’ cash flow manipulation practices and can demand better governance.</jats:p>
</jats:sec>
<jats:sec>
<jats:title content-type="abstract-subheading">Originality/value</jats:title>
<jats:p>The findings suggest that good corporate governance makes managers substitute earnings management with cash flow manipulation.</jats:p>
</jats:sec>

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Publisher
CrossRef
ISSN
0307-4358
DOI
10.1108/mf-01-2016-0028
Publisher site
See Article on Publisher Site

Abstract

<jats:sec> <jats:title content-type="abstract-subheading">Purpose</jats:title> <jats:p>The purpose of this paper is to examine whether firm-level corporate governance measures and regulatory reforms constrain manipulation of operating cash flows, an important firm performance indicator.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title> <jats:p>The sample comprises firms from an emerging market, India, with data from 2005 to 2011. The authors use the methodology given in the paper by Lee (2012) and multiple regressions.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Findings</jats:title> <jats:p>The authors find that cash flow manipulation is likely to increase with an increase in the controlling ownership. Furthermore, board diligence and better audit fail to curb such manipulation. However, the authors do find that such manipulation has gone down in the recent years, and diligent boards constrain it, possibly due to the recent steps taken by the Indian Government for improving the corporate governance environment in India.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Practical implications</jats:title> <jats:p>The findings can act as feedback for the regulators and policy makers. Potential investors and analysts may also benefit from the study, since they can be more vigilant about the firms’ cash flow manipulation practices and can demand better governance.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Originality/value</jats:title> <jats:p>The findings suggest that good corporate governance makes managers substitute earnings management with cash flow manipulation.</jats:p> </jats:sec>

Journal

Managerial FinanceCrossRef

Published: Nov 14, 2016

References