Corporate governance and earnings management in banks: An empirical evidence from India

Abstract

This paper aims to examine the role of corporate governance (CG) on earnings management (EM) in Indian commercial banks. In addition, the study examines the role of board gender diversity within the CG framework using data from 22 publicly traded commercial banks in India from 2010 to 2019. The study uses Principal Component Analysis (PCA) to develop a comprehensive CG measure. Using a Panel Corrected Standard Error (PCSE) approach, the study finds that CG has a significant negative impact on EM in Indian commercial banks. The findings further revealed a positive association between gender diversity of boards and EM, indicating that the lack of gender diversity on a bank’s board outweighs the benefits of gender-diverse boards. Our study shows that CG mechanisms are more effective when combined together than individual governance mechanisms. The study also provides new insight into the role of board gender diversity as a CG mechanism on EM in banks in the context of a developing country. The study provides practical implications for investors, managers, regulators and policymakers.

Keywords

• Banks
• Earnings Management
• Gender diversity
• Corporate Governance
• G3
• G21