Deakin University
Browse

File(s) under permanent embargo

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

journal contribution
posted on 2013-06-01, 00:00 authored by Simon FungSimon Fung, J Goodwin
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.

History

Journal

Journal of contemporary accounting and economics

Volume

9

Issue

1

Pagination

67 - 82

Publisher

Elsevier

Location

London, Eng.

ISSN

1815-5669

eISSN

2352-3298

Language

eng

Publication classification

C Journal article; C1.1 Refereed article in a scholarly journal

Copyright notice

2013, Elsevier

Usage metrics

    Research Publications

    Categories

    No categories selected

    Exports

    RefWorks
    BibTeX
    Ref. manager
    Endnote
    DataCite
    NLM
    DC