The Impact of Executive Pay and Executive Power on Earnings Management in India

This study examines whether, and the extent to which, executive pay and executive power impact earnings management behaviour in India. The study applies the modified version of Jones (1991) model propounded by Dechow et al (1995) to measure the proxy for accruals-based earnings management and the Roychowdhury (2006) model to measure real earnings management in 980 listed companies in India during the period 2008 – 2022. Weighted Least Square and fixed-effects regression techniques have been applied and the results reveal a statistically significant positive relationship between executive pay and earnings management, and between executive power and earnings management. Further, statistically significant negative relationship between earnings management and the interaction effect of executive pay and executive power suggests that well-paid, powerful executives on the board of directors are less likely to pursue earnings management activity in India. By using a large balanced panel data set of listed companies covering majority of the non-finance industries in the Indian economy over a span of 15 years, the study endeavours to shed light on the relationship between executive pay, executive