Impact of Earnings Management on Profitability of Commercial Banks: Evidence from India.

This article examines the impact of earnings management on the current and future financial performance of Indian private and public sector banks over the period 2012–2019. Using a bank-specific model developed by Beatty et al. (2002) and modified by Mangala and Singla (2021), earnings management is measured through discretionary loan loss provisions and realized security gains and losses. The study finds that Indian banks actively engage in earnings management, which significantly reduces current year return on equity (ROE), return on assets (ROA), and net interest margin (NIM), with negative effects persisting for up to two subsequent years in ROE and NIM. The article highlights the need for vigilant auditing and regulatory oversight by the Reserve Bank of India to detect and curb such practices, and advises investors to analyze multiple years of financial data beyond reported earnings to make informed decisions.