Debt Financing and Earnings Management: An Internal Capital Market Perspective

Wang, Hong-Da; Lin, Chien‐Heng

doi:10.1111/jbfa.12030

Cited by 19 publications

(18 citation statements)

References 67 publications

(169 reference statements)

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“…Source: Authors calculations. Table 8, finding of analysis proves that short term liabilities has a positive and significant impact on earnings management activities (Wang & Lin, 2013). Long term liabilities have a negative and significant impact on discretionary accruals of the firm (Rodríguez-Pérez & van Hemmen, 2010).…”

Section: Table 5 Results For Dac Regressed On Blockholdermentioning

confidence: 77%

“…Watts and Zimmerman (1986) contended that managers of the highly leveraged firms aim to manipulate earnings upwards for raising their bargaining power of acquiring debts for their operations. Wang and Lin (2013) investigated that internal capital market plays a significant role in modifying earnings of all firms. Study included Taiwanese firms in its sample to provide evidence that is compatible with the hypothesis.…”

Section: Earnings Management and Debt Structurementioning

confidence: 99%

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Ownership structure and debt structure as determinants of discretionary accruals: An empirical study of Pakistan

Ilmas

Tahir

Haq

2018

Cogent Economics & Finance

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Financial statements are the main source of financial reporting. The basic role of financial reporting is to effectively communicate financial information to outsiders in a timely and credible manner. Firstly this study used different models to evaluate the value of accruals and then presents most reliable results which have been concluded from modified Jones 1995. In order to examine the relationship, sample of nonfinancial listed companies of Karachi Stock Exchange from 2008 to 2014 would be used to run the regression. The results are consistent with said hypothesis, measures, and methodologies. The results demonstrate that discretionary variables decrease gradually with the percentage increases in the blockholders on its significant level. Further our results indicate that financial institutional and nonfinancial institutional ownership has positive but significant influence on discretionary accruals. Finding of analysis proves that short-term liabilities have a positive and meaningful impact on earnings management activities while long-term obligations

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Section: Table 5 Results For Dac Regressed On Blockholdermentioning

confidence: 77%

Section: Earnings Management and Debt Structurementioning

confidence: 99%

Ownership structure and debt structure as determinants of discretionary accruals: An empirical study of Pakistan

Ilmas

Tahir

Haq

2018

Cogent Economics & Finance

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“…Second, certain control‐enhancing mechanisms that lead to separation between ownership and control, such as pyramids, could be adopted for financing motives (Almeida and Wolfenzon, ; and Wang and Lin, ). In fact, the financing advantages of particular group structures explain the prevalence of family business groups around the world (Masulis et al., ).…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Does Family Control Shape Corporate Capital Structure? An Empirical Analysis of Eurozone Firms

Pindado¹,

Requejo²,

Torre

2015

Business Fin & Account

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This study investigates the relationship between family control and corporate capital structure considering the dynamic nature of the debt policy and the ownership structure of family firms. Our results show that the sensitivity of debt to fluctuations in cash flow is less pronounced in family firms and highlight that family control increases the speed of adjustment toward target debt. Four dimensions of the family business model explain these results: deviations of voting from cash flow rights, the presence of a second blockholder in the company, involvement of family members in management, and the generation in charge of the business. The weaker negative impact of cash flow on debt is driven by family firms with no control-enhancing mechanisms, companies with active family participation in management and family businesses that are still controlled by the first generation. By contrast, the more severe agency conflicts between owners and creditors in family firms with a second blockholder lead to more pronounced pecking order behaviour. Furthermore, the higher flexibility in corporate decision-making of family firms managed by the family and under the influence of the first generation explains why family companies are able to rebalance their capital structure faster.

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“…For example,Wang and Yung (2011) indicate that Chinese state-owned firms have lower levels of abnormal accruals and better accruals quality than privately owned firms. Further,Wang and Lin (2013) show that the availability of internal capital markets due to a pyramidal ownership structure in Taiwan reduces earnings management resulting from higher leverage. C 2014 John Wiley & Sons Ltd…”

mentioning

confidence: 99%

Stable Shareholdings, the Decision Horizon Problem and Earnings Smoothing

Shuto¹,

Iwasaki²

2014

Business Fin & Account

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Prior studies argue that stable shareholders do not encourage firm managers to manage their earnings to achieve short-term earnings goals. They also state that firm managers with stable shareholders have an incentive to report smooth earnings to maintain long-term relationships with such shareholders. We focus on cross-shareholdings and stable shareholdings owned by financial institutions as stable shareholdings in Japan, and investigate the effect of these ownership structures on earnings management patterns. Specifically, we hypothesize that stable shareholdings are positively associated with the informational components of earnings smoothing. Consistent with our hypothesis, we first find that as stable shareholdings increase, managers are more likely to conduct earnings smoothing that provides useful information to stable shareholders. Further, our additional analysis shows that stable shareholdings reduce incentives for managers to cut discretionary expenditures to meet short-term earnings benchmarks, implying that stable shareholdings could reduce the possibility of a myopic problem. These results suggest that managers with stable shareholdings tend to report smoother and less volatile earnings, and do not tend to pursue earnings management to attain short-term earnings targets.

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Debt Financing and Earnings Management: An Internal Capital Market Perspective

Cited by 19 publications

References 67 publications

Ownership structure and debt structure as determinants of discretionary accruals: An empirical study of Pakistan

Ownership structure and debt structure as determinants of discretionary accruals: An empirical study of Pakistan

Does Family Control Shape Corporate Capital Structure? An Empirical Analysis of Eurozone Firms

Stable Shareholdings, the Decision Horizon Problem and Earnings Smoothing

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