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This paper aims to examine the impact of initial public offerings (IPO)-year opportunistic earnings management on long-term market and earnings performance.

A sample of 150 book-built IPOs over 2001-2006 are analysed based on industry adjusted return on sales and industry adjusted return on assets for six post-IPO years. The quality of earnings is measured in two ways using discretionary accruals and Beneish manipulation score. Modified Jones model is used to estimate the expected accruals and to compute the discretionary accruals for each IPO firm year. Regression model is used to examine the impact of IPO-year quality of earnings on future earnings performance.

The paper finds that earnings and market performance of IPO companies are abnormally higher in the IPO-year, as compared to the post-IPO years. Similarly, the quality of earnings during the IPO-year is lower than those in the post-IPO years. The results also show that the opportunistic earnings management in IPO-year has significant negative impact on the long-term adjusted earnings and market performance.

The present study is confined to the period from 2001 to 2006 for the purpose of post-IPO analysis for a period of six post-IPO years. Thus, the conclusions of this study are to be viewed with this limitation.

This paper is the first study based on the Indian context to examine the relationship between the quality of earnings of the IPO firm and long-term earnings and market performance.

In the post-Enron era around the world, the role of auditor is widely debated. There is an increasing concern that an auditor’s continuous involvement with clients could impair audit quality – the negative view. There is also a positive view that a long auditor tenure leads to accumulation of client-specific knowledge over time, which could lead to high-quality audits. The empirical result with regards to impact of mandatory auditor rotation (MAR) is mixed world-wide. This study aims to examine whether MAR rules implemented in 2017 impact audit quality in India.

Using a unique setting in which MAR was required from 2017 to 2018 onwards in India, this study provides empirical evidence of the impact of MAR regulation on audit quality (modified audit opinion). The study uses data for 714 firms (4,284 firms) for six years (three years before MAR and three years after MAR regulation in India).

The study found that auditor tenure and MAR had significant negative impacts on audit quality, validating the “positive” view of audit tenure and audit quality. In addition, concentrated ownership had a negative impact on audit quality, implying the control and influence by concentrated ownership on auditors and audit opinion. The analysis shows that MAR regulation has not yielded the intended objective of improving audit quality in India. MAR is not a good template for improving audit quality.

The findings of the study are useful to policymakers, regulators, managers, investors and users of financial reports. The study calls for public policy on auditor rotation based on objective scientific evidence. In light of the evidence in India that MAR does not lead to better audit quality, the study calls for reset of regulatory policy in India.

The study provides valuable insights to analysts, regulators and other users of financial accounts about the implications of MAR in India.

The study is one of the few to report on the impact of MAR, particularly in the context of an emerging market economy such as India.

This paper aims to investigate the rounding-up in reported income numbers of Indian companies by examining the evidence of unusual occurrence of zero and nine in reported income numbers such as profit after tax and earnings per share (EPS). It also examines such rounding-up patterns under different scenarios such as companies varying across different time periods, income size, market capitalization, industries, initial public offering and earnings news.

All 1,707 companies listed on National Stock Exchange of India were considered for analysis. This study covered a period of 21 years from 1991-1992 to 2011-2012. Data were collected from PROWESS database.

In Indian companies, the rounding-up pattern in reported income numbers is in conformity with existing studies (Carslaw, 1988; Thomas, 1989). In case of income numbers, the observed proportionate occurrence of zero and nine is significantly different from the expected proportionate occurrence. The study found that anomalies in reported earnings vary across industry. Further, it is found that the per cent deviations are more in case of companies having high income levels, high market capitalization and with positive news.

In future studies, it will be interesting to develop a model reflecting the causes for such rounding-up of income numbers.

The paper provides an insight analysis on the rounding-up behavior of Indian companies and facilitates the understanding of occurrence of such anomalies under various scenarios. This paper may be useful to all the users of accounting information.

First study on examining the rounding-up of reported income numbers and EPS by companies in India.