This paper examines the effect of earnings management on financial leverage and how this relation is influenced by institutional environments by employing a large panel of 25,798 firms across 37 countries spanning the years 1989 to 2009. We find that firms with high earnings management activities tend to have high corporate leverage. More importantly, this positive relation is attenuated by strong institutional environments. Our results lend strong support to the agency theory of free cash flow. Various robustness tests confirm our main conclusions.JEL Classifications: G32, G15.
The rapid development of modern society, the flow of information has accelerated the communication between people, and big data is the product of this background. Big data technology has also begun to be widely used in enterprises, which will inevitably bring a major change. The internal control of an enterprise, as the basis of all the management mechanisms of the enterprise and an important means for determining whether an enterprise can survive and develop in the fierce market competition, has also ushered in a revolution because of big data. Therefore, in the context of big data, how to achieve the ultimate goal of internal control and the risk prevention of internal control has become the subject we need to study.
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