Shariah compliance and earnings management in India: Insights on reporting transparency and financial stability

Manu Abraham (1)
(1) Cochin University of Science and Technology, India

Abstract

The present study examines the impact of earnings management on financial stability and reporting transparency among Shariah and Shariah-non-compliant firms in India from 2008 to 2023. The Study uses Kothari and Roychodhury models to estimate earnings management proxies. Earnings manipulation and bankruptcy of the sample firms were estimated using Beneish’s M-score and Altman’s Z-score models. The Study reveals that compared to non-Shariah firms, the Shariah-complaint firms are less prone to earnings management and bankruptcy, and it was also found that they are more transparent in reporting their results. Overall, the study confirms that more than a religious indexation, Shariah screening is effective in maintaining ethical conduct of business practices that enhance the protection of investors. The findings of this study aid managers in policy formulations, and it will be helpful for potential investors in making investment decisions based on Shariah principles.

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Authors

Manu Abraham
007manuabrahampj123@cusat.ac.in (Primary Contact)
Author Biography

Manu Abraham, Cochin University of Science and Technology

Manu Abraham, School of Management Studies, Cochin University of Science and Technology – South Kalamassery, Kochi - 682022, Kerala, India; email: 007manuabrahampj123@cusat.ac.in

Abraham, M. (2024). Shariah compliance and earnings management in India: Insights on reporting transparency and financial stability. Modern Finance, 2(1), 145–165. https://doi.org/10.61351/mf.v2i1.141

Article Details

Leverage, capital adequacy, and financial stability in the fintech industry: Evidence from Indonesia

Abubakar Jamilu Baita, Diah Bardiah, Suhail Suhail, Ebrahim Omar Basalma
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