Earnings Management and the Cost of Publicly Issued Debt
(2016) BUSN89 20161Department of Business Administration
- Abstract
- The purpose of this study is to empirically test whether earnings management (both accruals-based and real) has an impact on the cost of public debt (approximated by credit ratings and bond yields) issued on the European bond market. Using a cross-sectional approach, accruals-based and real earnings management are estimated. The estimates are then used as explanatory variables in both an ordered regression, using bond ratings as dependent variables, and an OLS regression with the yield spread as dependent variable. The theoretical framework consists of previous research on earnings management and its impact on credit ratings and bond yields, as well as main theories such as the agency theory, signaling, asymmetric information and moral... (More)
- The purpose of this study is to empirically test whether earnings management (both accruals-based and real) has an impact on the cost of public debt (approximated by credit ratings and bond yields) issued on the European bond market. Using a cross-sectional approach, accruals-based and real earnings management are estimated. The estimates are then used as explanatory variables in both an ordered regression, using bond ratings as dependent variables, and an OLS regression with the yield spread as dependent variable. The theoretical framework consists of previous research on earnings management and its impact on credit ratings and bond yields, as well as main theories such as the agency theory, signaling, asymmetric information and moral hazard. The findings of this study suggest that the real earnings management practice of sales manipulation of issuing firms has a significant negative relation to the issue’s bond yield. Overall, earnings management does not appear to have any major influence on the credit rating decision of credit rating agencies nor the pricing of bonds. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/8886212
- author
- Wajnsztajn, Patrik LU and Heintz, Caroline
- supervisor
- organization
- course
- BUSN89 20161
- year
- 2016
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Earnings management, bond yields, credit ratings, Credit rating agencies, IFRS.
- language
- English
- id
- 8886212
- date added to LUP
- 2016-08-22 12:46:40
- date last changed
- 2016-08-22 12:46:40
@misc{8886212, abstract = {{The purpose of this study is to empirically test whether earnings management (both accruals-based and real) has an impact on the cost of public debt (approximated by credit ratings and bond yields) issued on the European bond market. Using a cross-sectional approach, accruals-based and real earnings management are estimated. The estimates are then used as explanatory variables in both an ordered regression, using bond ratings as dependent variables, and an OLS regression with the yield spread as dependent variable. The theoretical framework consists of previous research on earnings management and its impact on credit ratings and bond yields, as well as main theories such as the agency theory, signaling, asymmetric information and moral hazard. The findings of this study suggest that the real earnings management practice of sales manipulation of issuing firms has a significant negative relation to the issue’s bond yield. Overall, earnings management does not appear to have any major influence on the credit rating decision of credit rating agencies nor the pricing of bonds.}}, author = {{Wajnsztajn, Patrik and Heintz, Caroline}}, language = {{eng}}, note = {{Student Paper}}, title = {{Earnings Management and the Cost of Publicly Issued Debt}}, year = {{2016}}, }