TY - JOUR
T1 - Real earnings management and the cost of new corporate bonds
AU - Ge, Wenxia
AU - Kim, Jeong-Bon
PY - 2014/4
Y1 - 2014/4
N2 - 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.
AB - 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.
KW - Bond yield spread
KW - Credit rating
KW - New bond issue
KW - Real earnings management
UR - http://www.scopus.com/inward/record.url?scp=84893694190&partnerID=8YFLogxK
UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-84893694190&origin=recordpage
U2 - 10.1016/j.jbusres.2013.01.021
DO - 10.1016/j.jbusres.2013.01.021
M3 - RGC 21 - Publication in refereed journal
SN - 0148-2963
VL - 67
SP - 641
EP - 647
JO - Journal of Business Research
JF - Journal of Business Research
IS - 4
ER -