International Journal For Multidisciplinary Research

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The interrelationship between Cash Flow Volatility and Discretionary Accruals in Select Indian Companies

Author(s) Dr. Somnath Banerjee, Prof. Dr. Satyajit Dhar, Ms. Debalina Chattopadhyay
Country India
Abstract The practices of inflating or deflating reported income to further a subordinate goal of the management or managers of businesses are collectively referred to as earnings management. The extent of the earnings management can be measured from the Modified Jones Model. This model uses the Discretionary Accruals (DA) which is a proxy of earnings management. This is actually the difference of the cash from operations and the net addition to the funds. A connect between the business risk and the earnings management has been under examination in the academia. The internal risk of the business may partially reflect in the debt equity ratio and the external business risk, which may be turbulent sales, would reflect in the volatility of the cash flow from operations. We have attempted to investigate whether the discretionary accrual and cash flow volatility have an interdependence and also the extent of it. Using the Modified Jones model, we have calculated the discretionary accruals for Nifty 50 firms for the previous year. The banking and the financial firms were excluded as per the requirement of the applicability of the Jone’s model. The cash flow volatility has been ascertained by mean deviation where the five -year moving average has been considered as the mean. The OLS regression method has been applied which shows a dependence of the discretionary accruals on the cash flow volatility. The results could have been enhanced by the introduction of control variables which remains as the limitation of the study.
Keywords Earnings Management, Discretionary Accruals; Cash Flow Volatility, Regression Analysis
Field Mathematics > Economy / Commerce
Published In Volume 7, Issue 6, November-December 2025
Published On 2025-11-15
DOI https://doi.org/10.36948/ijfmr.2025.v07i06.60142
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