Title: Unveiling the connection: R&D expenditure and earnings management in Indian pharmaceutical sector

Authors: Sushma Vishnani; Meena Bhatia; Nidhi Singh

Addresses: Jaipuria Institute of Management, Hahnemann Rd., Vineet Khand, Gomti Nagar, Lucknow, Uttar Pradesh, 226010, India ' Indian Institute of Management Sambalpur, Basantpur, Near Gosala, Sambalpur (Odisha), 768025, India ' Jaipuria Institute of Management, A-32 A, Sector 62, Noida, 201309, Uttar Pradesh, India

Abstract: This study unveils the connection between research and development (R&D) spending and earnings management (EM) practices for pharmaceutical companies in India. It examines this connection through two models: the accruals model and the real activities-based EM through the real activities' modification model. The modified Jones model is utilised to evaluate accruals-based earnings management, and multiple regression modelling is used to examine the impact of R&D expenditure on discretionary accruals. The data for the study is from 2015-2023, with 504 firm-year observations. Research findings confirm the existence of accrual-based EM and a significant indication of real EM by pharmaceutical companies using discretionary R&D expenditure. The outcomes are relevant to researchers probing R&D's implications and scholars studying earnings management. They are also pertinent for regulators concerned about EM practices and other stakeholders investigating firms' financial reporting practices with substantial R&D expenditure.

Keywords: earnings management; accruals-based earnings management; pharmaceuticals; discretionary accrual; real earnings management; reporting quality; India.

DOI: 10.1504/IJMFA.2026.154821

International Journal of Managerial and Financial Accounting, 2026 Vol.18 No.3, pp.367 - 386

Received: 27 Mar 2024
Accepted: 26 Jul 2024
Published online: 15 Jul 2026 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article