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Expense shifting and revenue shifting in the income statement: substitutes or complements?

Manish Bansal (Department of Accounting and Finance, Indian Institute of Management Ranchi, Ranchi, India)

South Asian Journal of Business Studies

ISSN: 2398-628X

Article publication date: 23 March 2022

Issue publication date: 14 February 2024




The study aims at examining the relationship between the forms of misclassification practices, namely expense shifting and revenue shifting. In particular, the study aims at identifying the form of shifting that has been preferred by firms to meet the industry average profitability.


Core earnings and operating revenue expectation models are used to measure expense shifting and revenue shifting, respectively. The panel fixed-effects models are used to control for unobserved heterogeneity across industries and time.


Based on a sample of Bombay Stock Exchange-listed firms, the author finds that firms prefer expense shifting over revenue shifting to meet industry average profitability, implying that firms choose the shifting tool based on the relative advantage. Further, the findings deduced from the empirical results demonstrate that firm life cycle and mandatory adoption of International Financial Reporting Standards (IFRS) moderates the relationship between shifting forms and industry average profitability. However, the negative impact of IFRS on shifting practices is found to be less pronounced among BigN audit firms.


The study is among the pioneering attempt to document the substitution relationship between shifting forms. It is the first study that examines a form of classification shifting, where gross profit and core earnings both change as an effect of misclassification.



This paper is supported by the Indian Institute of Management Ranchi, Ranchi, India. The author acknowledges the financial assistance provided by the institute for undertaking this project.


Bansal, M. (2024), "Expense shifting and revenue shifting in the income statement: substitutes or complements?", South Asian Journal of Business Studies, Vol. 13 No. 1, pp. 18-36.



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