Title: Predictors of revenue shifting and expense shifting: Evidence from an emerging economy

Author (s):: Bansal M.; Kumar A.; Bhattacharyya A.; Bashir H.A.

Journal: Journal of Contemporary Accounting and Economics

Month and Year: August 2023

Abstract: Prior literature established that managers engage in Revenue Shifting (RS) and Expense Shifting (ES) with an intent to report favourable operating performance; our paper extends such research in a new direction by investigating both forms based on the need, ease, and advantage of each form of shifting strategy. The study identifies firm-specific factors that incentivize firms to prefer RS over ES and vice-versa. We undertake a longitudinal study (2001–2019) using a sample size of 39,634 firm-years, enlisted in the Bombay Stock Exchange (BSE). Our results show that peer-performance, size, financial leverage, growth opportunities, accounting flexibility, and age of the firm are important determinants of RS and ES. Specifically, our results exhibit that large, levered, old, and high-growth firms are engaged in RS, whereas small, young, firms with lesser accounting flexibility, and firms operating below peer-performance are involved in ES. These results are robust to controlling for accruals earnings management, real earnings management, endogeneity, self-selection bias, and alternative measures of RS and ES. Our findings are helpful to auditors and investors in improving awareness of forms of classification shifting. © 2022 Elsevier Ltd

Document Type: Article

DOI: https://doi.org/10.1016/j.jcae.2022.100339