Unveiling the linkage between corporate governance and earnings management: insights from Indian corporate sector

Purpose The rising significance of financial transparency and corporate accountability has underscored corporate governance as a fundamental mechanism for ensuring the integrity of financial reporting and protecting stakeholder interests. Amid ongoing concerns regarding earnings management practices reveal that governance mechanisms may influence variedly across firms and sectors. Against this backdrop, this study aims to explore the nexus between corporate governance (CG) and earnings management (EM) for 369 Indian firms listed on National Stock Exchange for time frame ranging from 2015–2016 to 2023–2024 using cross-tabulation analysis. Design/methodology/approach This study categorized the firms into 11 sectors and group into four tiers of CG quality (Very High, High, Moderate and Low) and EM intensity (Very High, High, Moderate and Low) to explore possible nonlinear patterns of association. Findings The key findings indicated that firms having strong corporate governance frameworks were aligned with lower earnings management practices, whereas firms having weak governance structures corresponded to higher levels of earnings manipulation. Research limitations/implications The results from this study underscore the complex and evolving nature of CG–EM relationship, stressing in the significance of reforms tailored to specific sectors in developing economies like India. Practical implications This study shows strong corporate governance reduces earnings management, offering insights for regulators, investors, boards and academic discourse in India. Originality/value The originality of this paper lies in constructing a composite governance index, categorizing governance–earnings manipulation through cross-tabulation and providing sectoral-year insights into India’s corporate governance–earnings management nexus.