This study aims at measuring the technical efficiency of banks in India and examining its determinants. Efficiency is said to be achieved if a bank is able to maximise its output subject to limited inputs. To obtain technical efficiency score, input-oriented Malmquist Data Envelopment Analysis is applied on two outputs and three input variables, based on a VRS (variable returns to scale) assumption. Three foreign banks—namely, A B Bank Ltd, Bank of Ceylon, and Citibank N A—and two Indian banks—namely, HDFC Bank and State Bank of India—are found to be most efficient during the study period. The efficiency scores when subsequently used as the dependent variable along with independent variables—bank size, capitalisation, liquidity risk, returns on assets, interest rate, credit risk, market concentration and gross domestic product (GDP)—in a panel regression analysis found the fixed effect model to be more appropriate in explaining the determinants. The results reveal that liquidity risk, returns on assets, credit risk, market concentration and GDP have a significant effect on the technical efficiency, while banks size, interest rate and level of capitalisation are found to be insignificant variables. JEL Classification: G21, C13, C60

This study investigates the effect of real earnings management (REM) on firms’ future performance in India. The sample comprises a balanced panel of 108 non-financial firms belonging to 21 industries (as per the two-digit NIC classification code) from 2006 to 2018. The proxy for REM given by Roychowdhury (2006) is used to measure REM, and the firm’s performance is measured through return on assets (ROA), return on equity (ROE) and price-to-earnings (PE) ratio. While ROA and ROE are measures of accounting performance, PE captures market performance. To explore the impact of REM activities on firms’ future performance, a Generalized method of moments (GMM) estimator is used in a dynamic panel setting. Since the proxy variables for performance is measured on a lead year basis, the analysis is restricted to the period 2006–2017. We also control for firm size, financial stability and growth. Our research reflects that Indian firms usually manipulate earnings by reducing discretionary expenditures. Regression results indicate that REM activities affect both accounting and market performance negatively.

While studies internationally have found an association between earnings management and the firm’s future performance, there is limited literature concerning Indian firms. Prior research in the Indian context has revealed the existence of opportunistic accruals management. However, its impact on a firm’s future performance remains unexplored. Thus, this study examines the impact of accrual-based earnings management on future performance among listed non-financial Indian firms. This study estimates accruals management proxies for 2006-2017 using the widely accepted modified-Jones model of discretionary accruals. Firm performance is measured using ROA, ROE, and PE ratio. This study uses a one-step System Generalised Method of Moments (GMM) to address the problem of endogeneity in the dynamic panel model. The result from the estimator indicates that discretionary accruals have a negative impact on accounting-based performance measures (ROA and ROE) and a positive impact on the market-based performance measure (PE ratio). These results are consistent for the three estimators (OLS, FE, and GMM), establishing a robust relationship between accrual management and firm performance. The findings of this study are consistent with the signaling hypothesis and suggest the likelihood of accruals reversal.

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This study aims to discover whether managers of Indian listed firms with extraordinary managerial abilities refrain from real earnings management (REM). The measure of managerial ability used in this study is based on the firm’s ability to utilize its resources into sales revenue. To examine the relationship between managerial ability and REM, a fixed-effect model is used on a balanced panel of 108 National Stock Exchange-listed non-financial firms from 2006 to 2017. The findings of the study provide empirical evidence indicating that a proficient manager is more likely to refrain from REM. The decrease in REM with an increase in managerial ability is on account of containing REM in overproduction by managers with higher abilities. Besides, the study also finds a complementary association between REM and accruals-based earnings management.