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Article
Publication date: 7 May 2021

Manish Bansal, Ashish Kumar and K. N. Badhani

The authors aim at investigating different forms of classification shifting (CS). CS is a novel form of earnings management under which managers misclassify income statement line…

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Abstract

Purpose

The authors aim at investigating different forms of classification shifting (CS). CS is a novel form of earnings management under which managers misclassify income statement line items and cash flow statement line items with an intent to report favorable operating performance of firms. In particular, the authors check the existence of revenue misclassification, expense misclassification and cash flows misclassification among Indian firms by taking the uniform sample of firms over a single period.

Design/methodology/approach

Operating revenue model (Malikov et al., 2018), core earnings expectation model (McVay, 2006) and operating cash flows model (Roychowdhury, 2006) are employed for measuring revenue misclassification, expense misclassification and cash flows misclassification, respectively. The panel data regression models are used to analyze the data for this study.

Findings

Based on the sample of 12,870 Bombay Stock Exchange (BSE) listed firm-years observations between 2010 and 2018, we find that, on average, Indian firms are engaged in revenue misclassification rather than expense misclassification to report inflated core earnings. Firms are found to be engaged in cash flows misclassification too. Besides, we find that magnitude of shifting is greater among larger firms. Results also establish that adoption of Ind AS increases the scope of shifting practices. These results are based on several robustness checks.

Practical implications

The results suggest that investors conduct a comprehensive review of the items of financial statements before using them in their portfolio valuation. It suggests auditors check the basis of revenue classification and standard-setting authorities, like ICAI in India, to make more mandatory disclosure requirements for classification of revenues and cash flows. It suggests lenders not to make lending decisions by looking at the operating performance metrics, as CS is the most preferred tool to positively influence the perception of lenders toward operating performance.

Originality/value

It is the first study that investigates different forms of classification shifting jointly for a sample of firms. Most of the earlier studies have examined one kind of classification shifting at a time. This study adds to the existing literature on earnings management by documenting that some firm-specific factors pressurize firms to prefer one form of shifting over another to report inflated core earnings.

Details

Managerial Finance, vol. 47 no. 11
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 29 June 2021

Asgar Ali and K.N. Badhani

The study investigates the impact of higher moments on cross-sectional returns in the Indian equity market.

334

Abstract

Purpose

The study investigates the impact of higher moments on cross-sectional returns in the Indian equity market.

Design/methodology/approach

Using the daily data of 3,085 Bombay Stock Exchange-listed stocks spanning over 20 years from January 2000 to December 2019, the study evaluates the relationship between higher moments (skewness and kurtosis) and stock returns at individual stock and portfolio levels. The variations in the returns of the equal-weighted and the value-weighted portfolios are analysed, where the portfolios are constructed by sorting the stocks on skewness and kurtosis. The returns are adjusted for five common factors – market excess-returns, size, value, momentum and illiquidity, to controls other cross-sectional effects. Besides, the study employs Fama-MacBeth cross-sectional regression and time-series tests of higher moments as robustness measures.

Findings

The study presents higher moments anomaly in the Indian equity market. Contrary to what is expected based on a risk-averse rational agent model, a robust positive relationship is observed between the skewness and stock returns. The relationship between the kurtosis and stock returns is negative, albeit statistically weak. These results are robust for the Fama-MacBeth cross-sectional regression and time-series tests.

Originality/value

It is among the earlier attempts to investigate the pricing impact of higher moments at different levels of asset prices in an emerging market. Besides the standard portfolio methodology for explaining cross-sectional variations, the study also employs the time-series tests for higher moment factors, hence provides more robust results. Results have wider implications for asset pricing in emerging markets and highlight many issues for further research.

Details

Managerial Finance, vol. 47 no. 12
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 2 December 2021

Asgar Ali, K.N. Badhani and Ashish Kumar

This study aims to investigate the risk-return trade-off in the Indian equity market at both the aggregate equity market level and in the cross-sections of stock return using…

362

Abstract

Purpose

This study aims to investigate the risk-return trade-off in the Indian equity market at both the aggregate equity market level and in the cross-sections of stock return using alternative risk measures.

Design/methodology/approach

The study uses weekly and monthly data of 3,085 Bombay Stock Exchange-listed stocks spanning over 20 years from January 2000 to December 2019. The study evaluates the risk-return trade-off at the aggregate equity market level using the value-weighted and the equal-weighted broader portfolios. Eight different risk proxies belonging to the conventional, downside and extreme risk categories are considered to analyse the cross-sectional risk-return relationship.

Findings

The results show a positive equity premium on the value-weighted portfolio; however, the equal-weighted portfolio of these stocks shows an average return lower than the return on the 91-day Treasury Bills. The inverted size premium mainly causes this anomaly in the Indian equity market as the small stocks have lower returns than big stocks. The study presents a strong negative risk-return relationship across different risk proxies. However, under the subsample of more liquid stocks, the low-risk anomaly regarding other risk proxies becomes moderate except the beta-anomaly. This anomalous relationship seems to be caused by small and less liquid stocks having low institutional ownership and higher short-selling constraints.

Practical implications

The findings have important implications for investors, managers and practitioners. Investors can incorporate the effects of different highlighted anomalies in their investment strategies to fetch higher returns. Managers can also use these findings in their capital budgeting decisions, resource allocations and other diverse range of direct and indirect decisions, particularly in emerging markets such as India. The findings provide insights to practitioners while valuing the firms.

Originality/value

The study is among the earlier attempts to examine the risk-return trade-off in an emerging equity market at both the aggregate equity market level and in the cross-sections of stock returns using alternative measures of risk and expected returns.

Details

Journal of Economic Studies, vol. 49 no. 8
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 4 July 2024

Barkha Dhingra and Mahender Yadav

This study aims to analyze the existing body of knowledge concentrating on institutional investors’ behavior. It seeks to track how this domain has evolved through collaborative…

129

Abstract

Purpose

This study aims to analyze the existing body of knowledge concentrating on institutional investors’ behavior. It seeks to track how this domain has evolved through collaborative networks, as well as significant contributors, themes and research opportunities for future work.

Design/methodology/approach

The present study applies bibliometric analysis to examine the trends in the selected research field, using 446 articles from highly recognized journals indexed in the Scopus database.

Findings

The authors discovered that research on institutional investors’ behavior has significantly increased over the past four decades due to academic interest in the topic. This study observed five themes that unite the research in this field: institutional investors and corporate behavior; determinants of institutional investors’ trading patterns and performance; trading activity and its outcomes; herding, causes and consequences; and institutional investment and corporate performance. Moreover, future directions are penned down, such as how institutional investors’ control influences governance disclosures.

Originality/value

This study serves as a guide by mapping and analyzing the intellectual development of the research literature on institutional investors’ behavior. The authors contribute to the knowledge base by providing a solid foundation for further studies.

Details

Journal of Modelling in Management, vol. 19 no. 6
Type: Research Article
ISSN: 1746-5664

Keywords

Available. Open Access. Open Access
Article
Publication date: 21 January 2021

Manish Bansal, Asgar Ali and Bhawna Choudhary

The study aims at investigating the impact of real earnings management (REM) on the cross-sectional stock return after considering the moderating role of market effect, size…

9129

Abstract

Purpose

The study aims at investigating the impact of real earnings management (REM) on the cross-sectional stock return after considering the moderating role of market effect, size effect, value effect and momentum effect.

Design/methodology/approach

The study uses weekly and monthly data of 3,085 Bombay Stock Exchange listed stocks spanning over twenty years, from January 2000 to December 2019. REM is measured through metrics developed by Roychowdhury (2006), namely, abnormal levels of operating cash flows, production costs and discretionary expenditure. The study employs univariate and bivariate portfolio-level analysis.

Findings

The findings deduced from the empirical results demonstrate that investors perceive downward REM as an element of risk; hence, they discount the stock prices at a higher rate. On the contrary, results show that investors positively perceive upward REM; hence, they hold the stocks even at a lower rate of return. This anomaly is found to be robust for all kinds of considered moderations.

Practical implications

The findings have important managerial implications as investors are found to assign different weights to different forms of REM, depending upon the perception regarding the magnitude of risk involved in different forms. Managers can accommodate this information during their short- and long-term corporate planning.

Originality/value

First, the study is among the earlier attempts to examine the association between REM and stock returns by considering the moderating role of cross-sectional effects. Second, the study considers the direction and endogenous nature of REM while investigating the issue.

Details

Asian Journal of Accounting Research, vol. 6 no. 3
Type: Research Article
ISSN: 2443-4175

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Article
Publication date: 10 July 2017

Amanjot Singh and Manjit Singh

This paper aims to attempt to capture the intertemporal/time-varying risk–return relationship in the Brazil, Russia, India and China (BRIC) equity markets after the global…

314

Abstract

Purpose

This paper aims to attempt to capture the intertemporal/time-varying risk–return relationship in the Brazil, Russia, India and China (BRIC) equity markets after the global financial crisis (2007-2009), i.e. during a relative calm period. There has been a significant increase in advanced economies’ equity allocations to the emerging markets ever since the financial crisis. So, the present study is an attempt to account for the said relationship, thereby justifying investments made by the international investors.

Methodology

The study uses non-linear models comprising asymmetric component generalised autoregressive conditional heteroskedastic model in mean (CGARCH-M) (1,1) model, generalised impulse response functions under vector autoregressive framework and Markov regime switching in mean and standard deviation model. The span of data ranges from 1 July 2009 to 31 December 2014.

Findings

The ACGARCH-M (1,1) model reports a positive and significant risk-return relationship in the Russian and Chinese equity markets only. There is leverage and volatility feedback effect in the Russian market because falling returns further increase conditional variance making the investors to expect a risk premium in the expected returns. The impulse responses indicate that for all of the BRIC markets, the ex-ante returns respond positively to a shock in the long-term risk component, whereas the response is negative to a shock in the short-term risk component. Finally, the Markov regime switching model confirms the existence of two regimes in all of the BRIC markets, namely, Bull and Bear regimes. Both the regimes exhibit negative relationship between risk and return.

Practical implications

It is an imperative task to comprehend the relationship shared between risk and returns for an investor. The investors in the emerging economies should understand the risk-return dynamics well ahead of time so that the returns justify the investments made under riskier environment.

Originality/value

The present study contributes to the literature in three senses. First, the data relate to a period especially after the global financial crisis (2007-2009). Second, the study has used a relatively newer version of GARCH based model [ACGARCH-M (1,1) model], generalised impulse response functions and Markov regime switching model to account for the relationship between risk and return. Finally, the study provides an insightful understanding of the risk–return relationship in the most promising emerging markets group “BRIC nations”, making the study first of its kind in all the perspectives.

Details

International Journal of Law and Management, vol. 59 no. 4
Type: Research Article
ISSN: 1754-243X

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Article
Publication date: 29 June 2021

Asgar Ali and Manish Bansal

The current study aims at examining the impact of upward and downward earnings management on the cross-sections of stock return. The study also examines the moderating role of…

691

Abstract

Purpose

The current study aims at examining the impact of upward and downward earnings management on the cross-sections of stock return. The study also examines the moderating role of cross-sectional effects on the association between earnings management and stock returns.

Design/methodology/approach

The study employed univariate and bivariate-sorted portfolio-level analysis to investigate the issue. Fama–Macbeth cross-sectional regression is used to analyze the moderating role of different cross-sectional effects. The study used a sample of 3085 Bombay Stock Exchange (BSE) listed stocks spanning over 20 years from January 2000 to December 2019.

Findings

The findings suggest that investors have different perceptions toward different forms of earnings management. In other words, results exhibit that investors perceive downward earnings management as an element of risk; hence, they discount the returns at a higher rate. On the contrary, results show that upward earnings management is positively perceived by the investors; hence, they hold the stocks even at a lower rate of return. This relation is found to be consistent even after controlling the impact of marker effect, size effect, value effect and momentum effect.

Originality/value

This study is among pioneering studies that consider the direction of earnings management while examining its impact on the stock return. This study is also among the earlier attempts to examine the moderating role of four different cross-sectional effects by taking a uniform sample of stocks over the same period.

Details

South Asian Journal of Business Studies, vol. 12 no. 2
Type: Research Article
ISSN: 2398-628X

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Article
Publication date: 14 March 2022

Manish Bansal and Asgar Ali

The study presents the zero investment strategies based on the pricing impact of real earnings management (REM) on stock returns after taking into account the direction and…

327

Abstract

Purpose

The study presents the zero investment strategies based on the pricing impact of real earnings management (REM) on stock returns after taking into account the direction and endogeneity nature of REM.

Design/methodology/approach

The authors use standard portfolio methodology and Fama–Macbeth cross-sectional regression to analyze the data for this study. Both upward and downward form of REM has been examined. Accrual earnings management (AEM) has been controlled while examining the association between REM and stock returns.

Findings

The findings demonstrate that the REM anomaly exists in the Indian equity market and is consistent under different market conditions and investment horizons. It is robust after controlling for cross-sectional effects and AEM. Our subsequent analysis suggests that a decile-based zero investment portfolio strategy based on REM loadings generates an annual excess return of 17.90%. The presented annual excess return is highest among quantile and mean-based investment strategies. Further, the authors find that REM sorted proposed investment strategies outperform the AEM sorted investment strategies in all spheres.

Practical implications

The findings suggest that investors can form an arbitrage profitable investment strategy by taking a long position in the bottom 10% of negative REM stocks, and a short position in the top 10% of positive REM stocks.

Originality/value

This is the first study that examines the pricing impact of REM on stock returns and provides zero investment strategies by betting against REM.

Details

Asian Review of Accounting, vol. 30 no. 2
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 4 May 2022

Palak Dewan and Khushdeep Dharni

The study examines herding in the Indian stock and commodity futures market including agricultural, metal and energy commodities. Herding is studied under various market…

257

Abstract

Purpose

The study examines herding in the Indian stock and commodity futures market including agricultural, metal and energy commodities. Herding is studied under various market conditions: rising and declining, high and low volatility. The study also examines spillover effects of herding.

Design/methodology/approach

The study adapts the cross-sectional absolute deviation model given by Chang et al. (2000) to examine herding in Indian stock and commodity futures markets.

Findings

The results of the study indicate absence of herding among commodity futures under all market conditions except for the declining market where herding is present among energy futures. The investors investing in agricultural and energy commodities have a higher tendency to herd during high volatility days as compared to low volatility days. Further, the study of herding spillover effects indicates that the price fluctuations in metal commodities affect herding in agricultural and energy commodities.

Research limitations/implications

The results can help market participants to diversify the risk by investing in agricultural, metal and energy futures along with the stocks.

Originality/value

Majority of the previous studies explore herding among stocks and ignore commodities especially agricultural commodities. This study attempts to fill the gap by studying herding among various commodity futures. To the best of our knowledge this is the first study to explore herding spillover effects in the Indian stock and commodity futures market.

Details

Journal of Agribusiness in Developing and Emerging Economies, vol. 13 no. 5
Type: Research Article
ISSN: 2044-0839

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Article
Publication date: 1 June 2023

Victor Daniel-Vasconcelos, Vicente Lima Crisóstomo and Maisa de Souza Ribeiro

This study aims to investigate the association between board diversity and systematic risk. The theoretical framework used in this study is based on agency and resource…

652

Abstract

Purpose

This study aims to investigate the association between board diversity and systematic risk. The theoretical framework used in this study is based on agency and resource dependency theories.

Design/methodology/approach

Using a panel data set of 788 firms listed in the Morgan Stanley Capital International (MSCI) Emerging Markets index from 2015 to 2020, the authors apply Panel-Corrected Standard Error estimation method to test the three proposed hypotheses and the two-stage least squares method is adopted for the endogenous test.

Findings

The results suggest that board-specific skills diversity (BSSD) and board independence (BIND) have a negative impact on systematic risk. On the other hand, board gender diversity does not affect systematic risk. The findings reinforce the relevance of board diversity for reducing systematic risk and offer valuable insights for policymakers and investors, suggesting that the presence of directors with specific skills and independent directors could reduce firms’ systematic risk.

Research limitations/implications

The study extends the scope of agency and resource dependency theories by suggesting that the BSSD and BIND reduce agency costs and bring critical resources to the firm’s survival.

Practical implications

The findings support policymakers and managers in reducing systematic risk. In addition, the results demonstrate the importance of policies that encourage board diversity and BIND.

Social implications

The study demonstrates how companies can reduce systematic risk through board diversity and BIND.

Originality/value

To the best of our knowledge, this is the first study to investigate the association between board diversity and systematic risk only in emerging markets.

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