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Short-term debt maturity, monitoring and accruals-based earnings management

Fung, Simon Y.K. and Goodwin, John 2013, Short-term debt maturity, monitoring and accruals-based earnings management, Journal of contemporary accounting and economics, vol. 9, no. 1, pp. 67-82, doi: 10.1016/j.jcae.2013.01.002.

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Title Short-term debt maturity, monitoring and accruals-based earnings management
Author(s) Fung, Simon Y.K.ORCID iD for Fung, Simon Y.K.
Goodwin, John
Journal name Journal of contemporary accounting and economics
Volume number 9
Issue number 1
Start page 67
End page 82
Total pages 16
Publisher Elsevier
Place of publication London, Eng.
Publication date 2013-06
ISSN 1815-5669
Keyword(s) accruals-based earnings management
short-term debt
agency costs
Summary Most prior studies assume a positive relation between debt and earnings management, consistent with the financial distress theory. However, the empirical evidence for financial distress theory is mixed. Another stream of studies argues that lenders of short-term debt play a monitoring role over management, especially when the firm's creditworthiness is not in doubt. To explore the implications of these arguments on managers' earnings management incentives, we examine a sample of US firms over the period 2003-2006 and find that short-term debt is positively associated with accruals-based earnings management (measured by discretionary accruals), consistent with the financial distress theory. We also find that this relation is significantly weaker for firms that are of higher creditworthiness (i.e. investment grade firms), consistent with monitoring benefits outweighing financial distress reasons for managing earnings.
Language eng
DOI 10.1016/j.jcae.2013.01.002
Field of Research 150103 Financial Accounting
1501 Accounting, Auditing And Accountability
1402 Applied Economics
1502 Banking, Finance And Investment
Socio Economic Objective 900201 Administration and Business Support Services
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2013, Elsevier
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Document type: Journal Article
Collection: Department of Accounting
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