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JMLC
20,2
Earnings management detection
over earnings cycles: the financial
intelligence in Indian corporate
116 Sandeep Goel
Department of Finance, Management Development Institute, Gurgaon, India

Journal of Money Laundering
Control
Vol. 20 No. 2, 2017
pp. 116-129
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-06-2016-0023
Abstract
Purpose – It is largely believed that stock pricing is influenced by disclosure of earnings. This motivates the
corporate to exercise earnings management practices. This paper aims to analyse and detect the earnings
management practices of Indian firms over earnings cycles. The earnings behaviour of the firms has been
analysed at three levels of earnings cycles for the pricing effect: complete, incomplete and prospective. In India,
the corporate ownership model is promoter-dominated shareholders’model (PDSHM) which highlights the
relevance of the study for earnings-management motivation. This paper contributes by examining earnings
management of the units at three levels of earnings cycle with regard to stock pricing. Earnings cycles have
been decomposed into three components: complete, incomplete and prospective. While earnings management
has been studied extensively, virtually all studies have focused on firm-specific effects. This study relates
earnings management to the cycle of the earnings for stock-price effect.
Design/methodology/approach – The cash-flow model has been used for the computation of accruals
(Collins and Hribar, 1999), and D’Angelo model (for calculating discretionary accruals) has been used for
detecting earnings management in the present study, being comprehensive in nature and detailed in approach.
The results of the “complete earnings cycle”are measured by net income. The results of the “incomplete
earnings cycle” are measured by the ratio of gross margin over sales multiplied by inventory. It yields an
approximate measure of the unrealized holding gains and losses. The “prospective earnings cycle” stems from
the management decision to choose a rate of income growth. Statistical tools have been used for testing the
results. These include regression analysis and descriptive statistics like arithmetic mean, median and
standard deviation.
Findings – An examination of the units shows that firms report more discretionary accruals (DACC) at
complete cycle, i.e. when financial markets are more certain about their future prospects which influence their
securities’ pricing. It verified that unrealized income and growth prospects have very little role to play in
determining returns. The results indicated that each of the components of the earnings cycle has a relevance
factor for returns. In complete earnings cycle, DACC had the highest significance on returns than operating
cash flows (OCF) and non-discretionary accruals (NDACC). Its determination content is the highest. So, the
firms report more negative DACC when financial markets are less certain about their future prospects.
Stock-price responses to earnings surprises are moderated when firm-level uncertainty is high, consistent with
performance being attributed more to chance rather than performance.
Research limitations/implications – The present study could be confined to only top 12 profit-making
corporate enterprises in the private sector in India, leaving all other enterprises due to data non-availability. Of
25 enterprises, there were public sector undertakings too which had to be excluded. The period in the study is
of five years (from 2003-2004 to 2007-2008) to highlight earnings management motivation. This period is best
suited to identify the effects of global recession on the practice of earnings management in India. Researchers
may like to select a different time-period based on their perspective.
Practical implications – It is hoped that the study would improve the understanding of the manner in
which the capital markets process the publicly available earnings and its components for global firms. The
findings of this study are significant not only for organisations that function in India but also for other
companies that are based in economies with relatively mature corporate governance mechanisms. So, the
authors’ findings have important policy implications for the Western world, as the sample companies are
multinationals and operate globally. Similar efforts in other countries would be rewarding in controlling the
management of reported earnings and enhance the reliability and transparency of reported earnings to
promote economic efficiency.
Social implications – Evidence on this issue could bring a new dimension to how the capital markets Detection over
interpret these reported earnings and its components (cash flows, DACC and NDACC) at different levels of
earnings cycles for minority shareholders in particular. Further, the evidence could also provide insights into earnings
the economic incentives for discretionary accounting choice and disclosure of the results of these earnings cycles
cycles.
Originality/value – It is an original paper which highlights the earnings behaviour and its motivation in
Indian corporate enterprises for earnings cycles with regard to stock pricing.
Keywords Earnings management, Discretionary accruals, Earnings cycles, Securities pricing, 117
Indian corporate
Paper type Research paper

Introduction
Accounting research since the late 1960s has provided ample evidence of the significant
effects of accounting earnings disclosures on firms’ security prices (Lev, 1989). Earnings
appear to affect equity prices, even though the effect might vary in every case. Therefore,
opportunistic discretionary accruals (DACC) are exercised by the management for better
market pricing. Goel’s (2014) study evaluates the practice of DACC for earnings management
in the Indian corporate enterprises. His analysis shows the presence of accrual management
in the units.
Most of the earnings-related studies about market return restricted themselves to a mere
examination of the market pricing of a complete earnings cycle (AICPA, 1973). Therefore,
they suffer from a misspecification due to the absence of the effects of both incomplete and
prospective earnings cycles.
This paper contributes by examining earnings management of the units at three levels of
earnings cycle with regard to stock pricing. Earnings cycles have been decomposed into
three components: complete, incomplete and prospective. While earnings management has
been studied extensively, virtually all studies have focused on firm specific effects. This
study relates earnings management to the cycle of the earnings for stock-price effect.
For an earnings cycle to be defined as complete, three conditions should be fulfilled:
(1) a realized sacrifice of cash;
(2) a related realized benefit (receipt) of cash; and
(3) no further related substantive effort.

An earnings cycle is defined as incomplete when:

• a realized sacrifice or a benefit has occurred, but the related benefit or sacrifice has not
been realized;
• both sacrifice and benefit are not realized; or
• the effort has not taken place (Objective No. 8 of the Trueblood Report).

Evidence on this issue could bring a new dimension to how the capital markets interpret
these reported earnings and its components (cash flows, DACC and nondiscretionary
accruals) at different levels of earnings cycles. Further, the evidence could also provide
insights into the economic incentives for discretionary accounting choice and disclosure of
the results of these earnings cycles, particularly incomplete and prospective.
India got new Companies Act, 2013 after a gap of 57 years since old Companies Act, 1956
on account of various corporate scams which had shaken the confidence of investors at large.
The policy formulators in India amended Clause 49 of Listing Agreement to inculcate sound
JMLC governance practices among Indian corporates. This acts as a reference point to the nations
20,2 globally and that is why this study becomes important and timely.
Unlike countries like the USA where shareholder model of corporate governance prevails
and countries like Japan which have coordinated model, Indian companies witness
promoter-dominated shareholders’ model (PDSHM) with strong control of the promoters. In
private sector, majority of the companies are family-owned businesses having the largest
118 shareholder holding over 50 per cent. This necessitates the study for detecting earnings
management for protecting shareholders’ interest.
A study by Pathak et al. (2014) stresses that each country has “its own standards,
regulations and culture”, and therefore, there is a need to explore earnings management –
securities pricing relationship in that specific context.
This study evaluates earnings management practices of large corporate enterprises in
India at various cycles of earnings in the Indian context. Being these enterprises
multinationals, the findings will be of material significance globally.
The rest of the paper is organised as follows. Next section presents a detailed literature review
of related concepts for developing our predictions concerning earnings management and the
contribution of the study. Proceeding sections explain the hypothesis and objectives of the study.
Next section discusses the research methodology. Section 5 presents the results of the analysis
with Section 6 concluding the paper. Sections 7 and 8 present the limitations of the study and
implications for future research.

Review of literature
Earnings behaviour of the management has always been a topic of extensive interest by the
researchers. There have been studies on the existence of earnings management activities.
Discussions and research have expanded to issues such as measures of earnings
management, objective and motivation for discretionary earnings behaviour of the
management and ultimately its impact on market value.

Definitional perspective
Watts and Zimmerman (1978) state that earnings management occurs when managers have
a discretionary behaviour related to accounting numbers with or without limits, and this
behaviour can be adopted to maximise the value of the company. Schipper (1989, p. 92) says
that earnings management is “[…] a purposeful intervention in the external financial
reporting process, with the intent of obtaining some private gain […]”. Healy and Wahlen
(1999, p. 365) aptly describe the earnings management in regard to the management
behaviour:
Earnings management occurs when managers use judgment in financial reporting and in
structuring transactions to alter financial reports to either mislead some stakeholders about the
underlying economic performance of the company.

Earnings management and business cycles

Dechow et al. (2010) pointed out that persistence is driven both by the accounting system and
firm fundamentals, and the effect of the two is a challenge for researchers. As fundamentals
in several industries are linked to macroeconomic factors, it seems natural that earnings
persistence should be associated with the macroeconomic cycle.
Conrad et al. (2002) found that firms have a greater tendency to manage earnings upward
during good times, and investors’ reaction to earnings disappointments is more adverse
during good times. Further, Graham et al. (2005) proved that managers consider meeting or
beating benchmarks to be very important, especially the analysts’ consensus and the
previous quarter’s earnings (Graham et al., 2005). It was in line with the view of DeGeorge Detection over
et al. (1999); Brown and Caylor (2005) and Roychowdhury (2006), identifying earnings earnings
management from firms’ meeting or beating benchmarks. cycles
For business conditions, many studies use measures based on business cycle data such as
growth rates of gross domestic product or industrial production (Fama, 1981; Johnson, 1999;
Chordia and Shivakumar, 2002; Kothari et al. 2006; Klein and Marquardt, 2006).
The macroeconomic environment can affect firm fundamentals, which in turn affects 119
earnings persistence. This is especially true in cyclical industries where firm value depends
primarily on the macroeconomic cycle (Damodaran, 2009).
Business cycle is important to earnings quality, which is borne out by a chief financial
officer (CFO) survey (Dichev et al., 2013) where CFOs rank macroeconomic conditions to be
highly influential in determining the quality of earnings.

Earnings management and stock-pricing effect

There has been extensive evidence that managers engage in earnings-management activities
(Healy and Wahlen, 1999; Fields et al., 2001). The extant accounting literature has identified
different motives and incentives for earnings management. Capital market motivations is
one of the most important motivations which suggests that the widespread use of accounting
information by investors and financial analysts to value stocks provides incentives for
managers to manipulate reported earnings.
Collins and Kothari (1989) found that persistent earnings are priced by the market.
Johnson (1999) and Conrad et al. (2002) examined how the stock market’s response to
unexpected earnings, earnings response coefficient (ERC), varies over the business cycle.
Johnson found that earnings persistence and the ERC are higher during good times (business
expansions) than in recessions.
The research in finance has identified a variety of closely related channels through which
reported numbers contribute to stock-price efficiency. Arising from trades between
investors, stock prices aggregate these different pieces of information and reflect investors’
overall expectations of the value of firms’ stocks (Glosten and Milgrom 1985; Hellwig 1980).
Although the effect of this behaviour on earnings informativeness is not thoroughly
investigated, meeting the analysts’ expectations is always important regarding growth
opportunity because firms that meet or beat expectations enjoy higher returns (Bartov et al.,
2002). To be able to meet or beat the forecasts, managers turn to earnings management.
Habib and Hansen (2008) document that investors pay a premium for companies beating
the earnings forecasts. Kross et al. (2011) find evidence suggesting that companies
consistently meeting or beating expectations are more likely to guide market expectations
downward to avoid breaking the consistency. Consistent results regarding earnings
manipulation to meet capital market expectations are found by Ball and Shivakumar (2008).
Campbell et al. (2009) use a sophisticated method to infer daily institutional trading
behavior from trade and quote database of New York Stock Exchange and find that
institutions anticipate earnings surprises and post-earnings announcement drift. The work
of Edmans et al. (2011) and Gerken (2009) provides empirical evidence that supports the
positive relationship between stock liquidity and formation of blockholdings. Ferreira et al.
(2011) find that stock-price informativeness affects the structure of corporate boards.
How the stock market responds to earnings news is important to our investigation
because stock market motivations are important for earnings management. The fact that
there is evidence of a relationship between pre-managed, forecasted and reported earnings in
relation to market return, it is important for analysts, researchers as well as regulators to be
JMLC able to detect those companies that are likely to engage/have engaged in income smoothing
20,2 to meet the market expectations.

Hypothesis
The implied hypothesis is earnings management and pricing of securities are correlated. It
has been seen that the market attaches value to a complete earnings cycle and its
120 components, as well as to the results of incomplete and prospective cycles. Thus, hypothesis
for the present discussion is:
H1. There is a significant relationship between earnings cycles and stock prices for
earnings management.
The results of the complete earnings cycle are measured by net income (NI). It has been
decomposed into operating cash flows (OCF), (DACC) and nondiscretionary accruals
(NDACC). The incomplete earnings cycle variable will be denoted as URHGL (to correspond
to unrealized holding gains and losses). The prospective earnings cycle is referred to as
income growth (ING).

Objective of the study

The study specifically aims at the following:
• to analyse the earnings management behaviour in the corporate enterprises in India;
and
• to examine the effect of earnings management at three levels of earnings cycles:
complete, incomplete and prospective for stock pricing.

Research methodology of the study

Sample design
The present study covers the listed companies in India. Keeping in view the differences in the
objectives and functions of these companies, the present research would concentrate on only
the companies in the private sector.
The enterprises have been chosen on the basis of their performance in terms of profit
generation (PAT performance) for the year 2007-2008 as per Economic Times October, 2007
Survey, on select basis. The top 25 corporate enterprises were considered for the sample, as
these are the ones which contribute a significant portion of India’s market size. These
companies constitute Bombay Stock Exchange (BSE)’s Sensex like Dow Joes of NYSE. Two
criteria were used for the selection of the companies in the final sample. First, the enterprises
should be in the private sector. Second, its accounting and market data, both were available
for the study. Of these companies, 12 met the sampling requirement. Therefore, “case based”
approach has been followed here. A list of these companies appears in Appendix 1.

Period of the study

The period to be covered in the present research study would be of five years, ranging from
2003-2004 to 2007-2008. It has been taken as follows:
• 2007-2008 has been a year of global recession which is an indicative reason for
earnings management by the corporate. So, it would be meaningful to focus the
attention on discretionary accounting practices of the enterprises chosen and detect
the various grey areas with regard to accruals management during this period.
• Further, a five-year period is long to reveal the short-term and long-term changes and
permit the valid conclusions thereof.
Data used Detection over
For the purpose of the present study, the main data used are secondary in nature, keeping in earnings
view the nature of the study. The study uses both accounting and market data. The
accounting data were obtained from the annual reports of the units and other such records for
cycles
the relevant period. Market data for the units were obtained from the BSE site.

Tools/techniques used
Earnings-management models 121
The total accruals model. DACC models involve first the computation of total accruals. The
Cash flow model has been used for the computation of accruals (Collins and Hribar, 1999),
being the basic model for accruals’ computation.
This approach calculates accruals from the cash flow statement as follows:

TAcf ⫽ NI ⫺ CFOcf

where:
TAcf is the total accrual adjustments provided on the cash flow statement under the
indirect method;
NI is the net earnings of the business; and
CFOcf is the operating cash flows (from continuing operations) taken directly from the
cash flow statement.
D’Angelo model (for calculating DACC) has been used for detecting earnings manage-
ment in the present study, as it is comprehensive yet simple in approach. The discretionary
portion of accruals in the D’Angelo model is the difference between total accruals in the event
year t scaled by total assets (At-1) and nondiscretionary accruals (NDACCt). The measure of
nondiscretionary accruals (NDACCt) rests on last period’s total accruals (TAt-1). In other
words:

(TAit ⫺ TAit⫺1 )
DACit ⫽
Ait⫺1

where:
DACit is discretionary accruals for firm i in period t; TAit and Ait-1 are total accruals and
total assets for period t and t ⫺l for firm i.
Earnings-cycles variables. In order to analyze the effect of earnings cycles on pricing of
securities, following accounting variables have been used:
• NI (Net income): The results of the “complete earnings cycle” are measured by net
income. Net income (NI) can be decomposed as follows:

NI ⫽ OCF ⫹ DACC ⫹ NDACC

where:
OCF ⫽ Operating cash flows.
DACC ⫽ Discretionary accruals.
NDACC ⫽ Nondiscretionary accruals.

• URHGL (Unrealized holding gains and losses): The results of the “incomplete earnings
cycle” are measured by the ratio of gross margin over sales multiplied by inventory. The
JMLC rationale is that, assuming the ratio of gross margin over sales to stay constant, multiply it
20,2 by inventory yields an approximate measure of the URHGLit. The incomplete earnings
cycle variable will be denoted as URHGLit (to correspond to unrealized holding gains and
losses).
The incomplete earnings cycle variable will be denoted as URHGL (to correspond to
unrealized holding gains and losses).
122 • Income growth: The “prospective earnings cycle” stems from the management decision to
choose a rate of income growth. The most rational decision is to maintain or to increase the
present rate of ING.
The results of the prospective earnings cycle for a coming year t ⫹1 is equal to the income
of the year t multiplied by the growth of income from year t ⫺1 to year t. The rationale is
that a firm expects to achieve at least the same rate of income growth as in the preceding
year. This variable is referred to as ING.

Statistical tools. Statistical tools have been used for testing the results accurately. These
include regression analysis, t test and descriptive statistics like arithmetic mean, median and
standard deviation.

Results and discussion

Descriptive statistics
Table I represents descriptive statistics about the main variables used in the study. All the
firms included in the sample exhibit positive NI and OCF. It shows an implied bias towards
profitable firms.
DACC and NDACC are computed using D’Angelo model. Under this model, both the
NDACC and DACC have positive means and medians and are negative for only four firms for
DACC and for five firms for NDACC.
The results of the incomplete earnings cycle and the prospective cycles show again that
all the firms were expecting positive URHGL and future income. This occurs by construction,
given the positive inclination towards profitability in the sample.

Earnings management over earnings cycles and stock returns

To assess the pricing of the results of earnings cycles, returns are regressed on the level of
earnings components as measures of the results of complete earnings cycles and on measures
of incomplete and prospective earnings cycles. The level of earnings as the result of complete
earnings is decomposed into its three component parts: OCF, NDACC and DACC.
Table II presents the results of the regression of returns on measures of complete earnings
cycles. The coefficients on OCF and NDACC and DACC are significant at the 0.01 level. The
DACC coefficient is negative because the average DACC variable is negative. So, the
significant effect of NI on returns is verified.

Variable Mean SD Median Minimum Maximum

R 1,086.36 693.69 772.92 472.73 2722.86

NI 2,748.10 2,619.07 2,217.53 510.07 10,640.57
Table I. OCF 3,317.28 3,842.32 2,227.87 130.96 14,733.00
Descriptive statistics DACC ⫺0.02 0.07 0.01 ⫺0.20 0.03
of returns and NDACC ⫺569.17 1,394.27 40.65 ⫺4,092.43 490.47
earnings cycles URHGL 40,609.01 52,836.11 20,591.69 0.00 182,520.80
variables ING 7076,423.22 2280,4383.40 64,733.91 43,445.47 79380,125.62
The results of the regression of returns on measures of incomplete and prospective earnings Detection over
cycles are not significant as expected. The coefficients on URHGL and ING as expected are earnings
almost zero. It signifies that unrealized income and growth prospects have very little role to
play in determining returns. The reason could be that these variables are not explicitly stated
cycles
in the financial statements of company. Therefore, the effect of these variables has been
ignored for the presentation. ING, NI and URHGL for the sample companies, from 2003-2004
to 2007-2008 are given in Appendix 2.
The results indicate that each of the components of the earnings cycle has a significant 123
weight in regard to returns. However, the weights attached to the components of the
incomplete and prospective earnings cycle are almost zero as compared to the weights
attached to the components of the complete earnings cycle. These results may be due to the
surrogate measures used for measuring the results of incomplete and prospective earnings
cycles. Second, in complete earnings cycle, DACC has the highest significance on returns
than OCF and NDACC. Its determination content is the highest. It, undoubtedly, verifies the
role of accrual management in determining returns.
In summary, these results reveal that:
• DACC have information content; and
• that though results of incomplete and prospective earnings cycles are almost
insignificant, but still they have incremental information content which might not be
explicit.

It improves earnings’ ability to explain market returns. This evidence is consistent with the
market’s attaching value to the results of incomplete and prospective earnings cycles, even
though they are not explicitly included in accounting reports.

Conclusion
The present study analyses the earnings management practices in corporate enterprises in
India at different cycles of earnings for stock pricing.
After studying the earnings cycles effect on the pricing of securities, it is found out that
the results of the regression of returns on measures of incomplete and prospective earnings
cycles were not significant as expected. It verified that unrealized income, and growth
prospects have very little role to play in determining returns. The reason could be that these
variables are not explicitly stated in the financial statements of company.
The results indicated that each of the components of the earnings cycle has a relevant
factor for returns. In complete earnings cycle, DACC had the highest significant on returns
than OCF and NDACC. Its determination content is the highest.
So, the firms report more negative discretionary accruals when financial markets are less
certain about their future prospects. Stock-price responses to earnings surprises are
moderated when firm-level uncertainty is high, consistent with performance being attributed
more to chance rather than performance.

Description Coefficients Standard error t statistic R2

Intercept 899.77 379.04 2.37 Table II.

OCF 0.13 0.15 0.87 Regression of returns
NDACC 0.45 0.42 1.06 earnings components
DACC ⫺182.52 3,551.94 ⫺0.05 (results of complete
0.13 earnings cycle)
JMLC This discussion shows that DACC have information content. In addition to the results of
20,2 complete earnings cycles, the results of both incomplete and prospective earnings cycles,
though not explicit, are also priced by the stock market. This result is consistent with the
pricing of relevant information by an efficient market. The information content of
incomplete and prospective earnings cycles improves the relevance of earnings. The
results show also that although DACC are priced by an inefficient market, the
124 information content of both incomplete and prospective earnings cycles points to the
efficiency of the market looking beyond the pricing of opportunistic earnings
manipulation in the pricing of future earnings.

Limitations of the study

There are some limitations of this study which could be grouped as follows:
• The present study could be confined to only top 12 profit-making corporate
enterprises in the private sector in India, leaving all other enterprises due to data
non-availability. Of 25 enterprises, there were PSUs too which had to be excluded.
Though these companies constitute a significant size of BSE’s market
capitalisation for data set, still the size can be extended for further study.
• The period in the study is of five years (from 2003-2004 to 2007-2008) to highlight
earnings management motivation. This period is best suited to identify the effects
of global recession on the practice of earnings management in India. Researchers
may like to select a different period based on their perspective.
• Earnings management scope can be further examined, apart from stock-pricing
behaviour, for other motivational parameters in the light of growing investors’
awareness about accrual reported numbers.

Implications for future

The findings of this study are important to standard setters and regulators, as it
highlights the need for an effective regulation for detecting earnings management. There
is a strong need to have well-defined policies and regulatory mechanism with respect to
prevent and detect earnings-management practices at an early stage.
The findings of are importance to various entities which have investment and other
business motivations for India. Such firms seek superior quality of financial reporting to
make informed decisions.
The findings of this study are significant not only for organisations that function in
India but also for other companies that are based in economies with relatively mature
corporate-governance mechanisms. So, our findings have important policy implications
for the Western world, as the sample companies are multinationals and operate globally.
The association between earnings management and securities pricing as highlighted
in the Indian perspective in the present study is equally important for the Western world.
“Their basis of corporate governance practices is common – UK Company Law”.
Practices imbibed by India in Companies Act, 2013 with respect to corporate governance
are being followed in countries, like the USA and Australia from past one and a half
decade. Such insights would be helpful in understanding the relevance of different
regulatory mechanisms for various contexts. Similar efforts in other countries in would
be rewarding in controlling the management of reported earnings and enhance the
reliability and transparency of reported earnings to promote economic efficiency.
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JMLC Appendix 1
20,2
Serial no. Company PAT (2007) Rs. crore

1. Reliance Industries Ltd 12,075

128 2 Sterlite Industries Ltd 4,386
3 Tata Consultancy Services Ltd 4,213
4 Tata Steel Ltd 4,177
5 Bharti Airtel Ltd 4,062
6 Infosys Technologies Ltd 3,856
7 Wipro Ltd 2,942
8 ITC Ltd 2,755
9 Hindalco Ltd 2,687
10 Larsen and Toubro Ltd 2,251
11 Tata Motors Ltd 2,170
Table AI. 12 Grasim Industries Ltd 1,968
Index of companies
included in the study Source: ET 500, The Economic Times, New Delhi, October 2007

Appendix 2

(Rs. in cr.)
Company 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

1. RIL 132,744.13 353,854.9 179,389.35 378,484.52 1,224,332.3

2. Sterlite 3,462.18 ⫺4,897.53 194,371.61 41,862.89 20,342.74
3. TCS 21,073.41 21,912,373.3 131,354.50 143,884.68 90,176.64
4. Tata Steel 126,598.41 343,779.14 3,251.88 86,188.27 51,606.56
5. Bharti Airtel 25.23 396,019,973.2 133,190.80 405,141.09 342,297.72
6. Infosys 37,065.38 101,218.7 65,676.86 212,823.05 81,176.05
7. Wipro 11,435.58 94,756.24 71,051.06 115,572.84 23,841.59
Table AII. 8. ITC 25,727.66 82,346.9 4,483.14 56,119.18 48,550.45
ING for the sample 9. Hindalco 37,006.36 77,713.04 40,622.85 140,763.60 33,091.82
companies, from 10. L&T Ltd 12,257.80 83,306.38 2,910.35 54,183.46 119,342.76
2003-2004 to 11. Tata Motors 137,769.41 65,120.23 36,082.78 48,131.86 12,242.70
2007-2008 12. Grasim 87,275.08 12,099.15 ⫺2,192.84 119,667.96 101,292.04
 (Rs. in cr.)
Detection over
Company 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 earnings
cycles
1. Reliance Ind. Ltd 5,160.14 7,571.68 9,069.34 11,943.40 19,458.29
2. Sterlite Ind. Ltd 197.15 106.42 511.12 784.03 951.63
3. TCS 15.18 1,831.42 2,716.87 3,757.29 4,508.76
4. Tata Steel 1,746.22 3,474.16 3,506.38 4,222.15 4,687.03
5. Bharti Airtel Ltd 0.37 1,210.67 2,012.08 4,033.23 6,244.19 129
6. Infosys 1,243.47 1,904.38 2,421.00 3,783.00 4,470.00
7. Wipro 914.88 1,494.82 2,020.48 2,842.10 3,063.30
8. ITC Ltd 1,592.85 2,191.40 2,235.35 2,699.97 3,120.10 Table AIII.
9. Hindalco 838.93 1,329.36 1,655.55 2,564.33 2,860.94 NI for the sample
10. L&T Ltd 532.75 983.85 1,012.14 1,403.02 2,173.42 companies, from
11. Tata Motors 810.34 1,236.95 1,528.88 1,913.46 2,028.92 2003-2004 to
12. Grasim Ind 779.26 885.71 863.21 1,535.81 2,232.60 2007-2008

(Rs. in cr.)
Company 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

1. Reliance Ind. 141,225.73 144,477.03 170,114.17 210,447.08 246,339.97

2. Sterlite Ind. 5,304.40 5,979.67 12,219.97 18,380.65 24,166.78
3. TCS 0.00 0.00 681.09 360.35 513.64
4. Tata Steel 36,860.35 72,499.33 78,530.22 86,553.56 103,652.15
5. Bharti Airtel 0.00 1,158.99 642.72 1,945.87 2,372.20
6. Infosys 0.00 0.00 0.00 0.00 0.00
7. Wipro 2,433.59 3,409.69 3,815.85 6,190.30 10,257.01
8. ITC Ltd 33,691.25 45,568.02 58,130.19 74,828.41 95,511.26 Table AIV.
9. Hindalco 31,582.42 58,531.92 95,579.40 94,160.06 95,381.90 URHGL for the sample
10. L&T Ltd 17,833.03 19,064.43 21,528.03 38,504.63 60,196.62 companies, from
11. Tata Motors 14,205.31 18,431.65 24,368.23 27,910.60 26,906.53 2003-2004 to
12. Grasim Ind. 11,275.15 16,272.59 15,735.30 22,779.23 28,032.31 2007-2008

About the author

Presently, Dr Sandeep Goel is an Associate Professor in the area of Accounting & Finance at
Management Development Institute, Gurgaon. He holds “Double Doctorate”, one in Finance and
another in Accounting from Faculty of Management Studies (FMS), University of Delhi. He did his
Hons. in Commerce from Shri Ram College of Commerce, University of Delhi and Master’s degree in
Commerce with specialisation in Finance from Delhi School of Economicş University of Delhi. He has 20
years of industry and academic experience at senior levels in different organisations/institutions of
repute, including Shri Ram Group, Delhi University and MDI. He is a Management Trainer and
Consultant to organisations like Bata, TIL, Ester Industries, BEL, LIC, Jindal and ONGC. He has
delivered and conducted over 100 programmes, namely, Finance for Non-Finance Executives,
Independent Directors, Enhancing Financial Skills Using Excel and Faculty Development in
International Business. He has executed a number of consultancy assignments; the major ones include
financial management of BATA, accounting application for SAP Professionals of Ester Industries and
financial leadership of TIL. He has been the Financial Columnist to “Purchase” (A Publication of Indian
Purchase.com). His areas of teaching and research interests are financial reporting and analysis,
management accounting and control, corporate finance, corporate governance and earnings
management. He has authored eight books and published over 50 articles in national and international
journals of repute. Sandeep Goel can be contacted at: sandeep@mdi.ac.in