Does External Pressure Impact Profitability? Evidence from the Nifty 500 Index of India

Does External Pressure Impact Profitability? Evidence from the Nifty 500 Index of India

Abinash Kumar Behera1, Dr. Suprava Sahu2

1 Research Scholar, Ravenshaw University, Cuttack, Odisha, India, 753003

2 Assistant Professor, Ravenshaw University, Cuttack, Odisha, India, 753003

Abstract

Pressure is one of the factors of fraud theory. To survive in the long run, business should be profitable. Earning profit is the primary goal of all business. This study aims to explore the effect of external pressure on the profitability of India's nifty 500 index companies. Annual financial data of 249 companies collected from the ProwessIQ database. Regression and correlation analysis was conducted using panel data from 2016 to 2024. The result shows companies with higher debt-to-equity ratios have lower profitability, potentially due to financial pressure or dishonest accounting practices. Leverage has a minimal negative effect on return on assets. Liquidity has mixed impacts on profitability, with higher liquidity potentially causing financial pressure and suspect cases of earnings manipulation. Profitability is affected by external pressure; however, its effects are dependent upon the financial factor under consideration. Understanding the link between external pressure and profitability aids corporate managers, investors, and regulators in identifying early signs of financial distress and fraudulent behaviour. Addressing external pressures proactively can enhance transparency and investor confidence. This research contributes to fraud literature by empirically testing the influence of external pressures on financial performance in an emerging market context.

Keywords: Pressure, Profitability, Leverage, Liquidity, Fraud Theory