Evaluating Earnings manipulation of Selected Sectors in India Using Beniesh’s M Score Model

Abstract

In today's changing economy, it is very evidently observed in the financial statements that there is prevalence of Earnings manipulation. There is a question in reliability of the reports for making decisions by the analysts, researchers and regulatory bodies. This paper analyses the M-score model (8 variable model) to detect the earnings management practices developed by Prof. Beneish (1999). This mathematical model shows the companies having high score are likely the manipulators. It is similar to Altman's Z-score which was developed to detect bankruptcy. The study analyses 20 companies from five sectors namely Pharmaceuticals, Automobiles, FMCG, Oil & Gas and Infrastructure for a period of 10 years (2009–2018) and 2009 considered as the base year. The tools used for the study are correlation, independent sample t-test and ADF statistic unit root test. The overall findings of the study reveal that there is very low probability of earnings manipulation among the selected companies of this study.