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The present study's goal is to analyze the impact of audit quality (AQ) on earnings quality (EQ) using different audit attributes. The study shows empirical evidence from India, considered an emerging market.

The sample selected represents the 376 non-financial firms listed on the Bombay Stock Exchange (BSE). With a 20-year time frame, the authors used the absolute value of discretionary accruals (McNichols, 2002) (DA) as a proxy for EM, which is inversely related to EQ. The authors analyzed data using OLS, fixed effect (FE), 2SLS and Panel-IV estimators.

The authors found that most audit attributes positively affect EQ. In the Indian context, joint auditor (JA), auditor size (A_SIZE), auditor fee (A_FEE) and auditor tenure (A_TENURE) have a negative association with EM indicating high EQ. In contrast, auditor rotation (A_ROTATON) positively affects EM confirming low EQ.

The present study uses Big-4 and its member firms as a proxy of auditor size (A_SIZE); instead, other bases may be taken for it, like the dominant audit firms in a particular industry in sample data, etc. The authors have started audit tenure from the base year, i.e. 2001, which may ignore the association of auditor and auditee just before 2001.

The study findings would enhance policymakers' willingness to prepare appropriate regulations regarding JAs and auditor rotation, which might improve financial market efficiency and reduce financial fraud among Indian corporates.

To the best of the authors' knowledge, this is the first study to incorporate “Joint Auditor” (JA) as a proxy for audit quality in the Indian context, which might significantly contribute to the literature.

This case study will allow students to understand and analyse the process for conducting equity valuation by building a three-statement financial model, to understand and apply the workings of discounted cash flow (DCF) valuation methodology and its components, to apply the concepts related to the calculation of the weighted average cost of capital in the determination of discounting rate, to understand the terminal value calculation and assumptions thereof and to analyse the intrinsic valuation for the target company using the traditional multi-stage DCF model for investment decision-making.

In July 2019, Kapil Agarwal, an equity analyst operating out of Mumbai, India, was carefully looking over the financials of Asian Paints, a leading paints company in India. As an equity analyst, Kapil was constantly on the lookout for fundamentally strong but undervalued companies that could create long-term wealth for his equity fund. To decide upon the right valuation of Asian Paints, Kapil conducted fundamental analysis using the DCF method on the basis of available financial information. This case study puts students in an investment analyst role wherein they forecast financial statements and conduct DCF valuation for Asian Paints to discover potentially undervalued stocks for investment decision-making.

This case study is designed for use in an undergraduate or postgraduate programme in business management, particularly in a course on business valuation or investment management or security analysis.

Teaching notes are available for educators only.

CSS 1: Accounting and Finance.

In the backdrop of emerging market setting of India, this study aims to attempt to identify how Institutional investors use sell side analyst outputs for their decision-making processes in light of inherent biases in their forecasts and recommendations. The study also conceptualizes the role of internal buy side teams in the process and try to figure out the key attributes and services provided by sell side analysts, which provide maximum value to the investors.

The study is centered upon in-depth semi-structured interviews of ten institutional investors from top Indian asset management companies covering a wide range of topics tied back to theoretical explanations. The data collected was transcribed, coded and analyzed using content analysis to ensure a systematic synthesis of point of view.

The findings show that internal analyst teams of institutional investors play a dominant role in terms of validation of sell side analysts’ outputs (given the inherent biases in sell side analyst forecasts). Further, the engagement of sell side analysts by the investors are determined not only through profitable recommendations but also on the basis of soundness of the investment rationale along with other services provided. Finally, this study puts into perspective, the critical role of analyst industry knowledge and access to company management (as opposed to analyst pedigree and forecast accuracy) for institutional investors decision-making.

The findings of the paper have profound implications for various stakeholders such as companies, sell side analysts, policy makers, researchers and students of finance in terms of detailed understanding of investment processes of institutional investors in the context of emerging markets like India, which have a different legal and regulatory set-up compared to developed markets. The authors also provide a critical perspective through an intriguing paradox that exists between finance theory and its relevance for actual practitioners.

To the best of the authors’ knowledge, this is the first study in India which look inside the “black box” of institutional investors and their decision-making process, especially with respect to how they use sell side outputs.

The purpose of this paper is to examine the relative predictive abilities of current earnings (and its components) and cash flows for next period cash flows in case of Shariah-compliant companies in India.

The study uses the list of CRISIL NSE Index (CNX) Nifty Shariah Index companies as its sample for a period of 10 years for conducting the analysis. The study utilizes the cash flow prediction models to examine the relative predictive abilities of current earnings (and its components) and cash flows for next period cash flows.

The study report that contrary to Financial Accounting Standard Board assertion, current cash flows have superior predictive ability of next period cash flows than current aggregate earnings in case of Shariah-compliant companies in India. The results further show that there are no gains from decomposing earnings into accruals and cash flows in predicting future cash flows. There is no increase in explanatory power (measured by adjusted R2) when aggregate earnings are disaggregated into accruals and cash flows to predict next period cash flows.

The empirical findings of the study will enable the Shariah compliant investors to understand the role of current earnings (and its components) and cash flows in predicting next period cash flows in case of Shariah-compliant companies in India.

To the best of author’s knowledge, this is the first study which examines the relative predictive abilities of current earnings (and its components) and cash flows for next period cash flows in case of Shariah-compliant companies in India.

This study aims to investigate the persistence ability of accounting variables, namely, abnormal earnings, book value, accruals and cash flows over a period of time and their valuation relevance in Indian scenario.

The study utilizes the generalized version of the Ohlson model which links market prices with abnormal earnings, book value and earning components (accruals and cash flows). Fixed-effect panel data regression is used to analyze six years of data on the sample units to determine the persistence and valuation relevance.

The findings provide evidence on the construct of persistence and value relevance of earnings and book value of equity in the Indian context. The findings further confirm that investors in India are fixated on earnings and fail to attend separately to the cash flow and accrual components of earnings while undertaking their investment decisions.

The empirical findings of the study will enable the analysts and investors to understand the relevance and persistence of accounting variables in case of an emerging market like India.

The study extends the extant literature on value relevance studies in developed markets to an emerging market like India and enriches it in several ways.

Based on the agency theory, the purpose of this paper is to empirically investigate the impact of capital structure choice on firm performance in India as one of the emerging economies.

Fixed effect panel regression model is used to analyse ten years of data (2003-2012) on the sample units, to find the relation between leverage and firm performance after controlling for factors such as size, age, tangibility, growth, liquidity and advertising.

Empirical results suggest that leverage has a negative influence on financial performance of Indian firms, which is in contrast with the assumptions of agency theory as commonly received and accepted in other developed as well as emerging economies. Consequently, postulates of agency theory have to be seen with different perspective in India given the underdeveloped nature of bond markets and dominance of state-owned banks in lending to corporate sector.

The findings of the paper will enable the practitioners and analysts to understand as to why, in the bank-dominated debt financing system in India, leverage is negatively associated with firm performance.

The results of the study enrich the literature on capital structure and agency costs issues in several ways.

The study aims to investigate the relationship between competition and efficiency. Using bank-level data for Indian banks, relationship between competition and efficiency is examined by applying the Granger causality test for the period 1996 to 2011.

Lerner Index is a measure of market power and is applied for estimation of competition. Data envelopment analysis technique is applied for measuring efficiency in the Indian banking system along with the Granger causality test to look at the relationship between competition and efficiency.

Results show an increasing trend for competition for the period 1996 to 2004, and after that there is fall in competitive levels. Granger causality tests show that competition positively effects efficiency and vice-versa.

This study gives an insight into the relationship between competition and efficiency, thus providing an alternative view to the structure–conduct–performance paradigm. An efficient banking system can positively impact the growth of an economy and, hence, competition and efficiency are important decision parameters for regulators and could help them in decision-making and policy formulation.

This study has covered more than 90 per cent of the banking assets for looking at competition and efficiency in the banking sector. Policymakers can try to improve competitive levels in banking so as to improve efficiency in the banking sector which can further help in developing the investment-savings cycle.

The main goal of this study is to analyze how monetary debt effects firm behavior of 167 registered manufacturing companies in G-7 countries.

The sample of the present study is taken from the listed firms in G-7 countries. For the building companies, the yearly financial statements of 2007–2018 have been taken from world stock exchange and Thomson Reuters Data Stream. In this study, regression analysis are directed with panel data over the period of 2007–2018 using ordinary least square summary statistics, correlation matrix and generalized method moments. Data were analyzed by employing E Views and Stata 13 software.

The significant findings of the current study indicated that fixed assets, tangible assets, taxes, net cash and profitability have positive association with debt level.

The current work include only registered manufacturing firms in G-7 countries. Moreover, ownership types are not accounted for in this study.

The current analysis is an empirical investigation of antecedents of debt regarding G-7 countries with up-to-date data. Various regression inquires have been made to design the models using different measures of debt and measure of firm performance indicators. These works will assist G-7 countries firms to know the effects of identified factors on time raising debt level.

The current work has been finalized using genuine data of yearly reports and database. This study incorporated antecedents of debt, which have limited discourse in prior literature. Furthermore, this study explores the connection between debt level and firm performance of G-7 countries.