Real earnings management and the cost of new corporate bonds

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

72 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)641-647
Journal / PublicationJournal of Business Research
Volume67
Issue number4
Online published16 Feb 2013
Publication statusPublished - Apr 2014

Abstract

We examine the association between real earnings management and the cost of new bond issues of U.S. corporations. We consider three types of real earnings management: sales manipulation, overproduction, and the abnormal reduction of discretionary expenditures. We find that overproduction impairs credit ratings and that sales manipulation and overproduction are associated with higher bond yield spreads. Overall, our results imply that credit rating agencies and bondholders perceive real earnings management as a credit risk-increasing factor and thus require high risk premiums. © 2013 Elsevier Inc.

Research Area(s)

  • Bond yield spread, Credit rating, New bond issue, Real earnings management