Real earnings management and borrowing costs: The moderating effect of the directors’ and officers' liability insurance

Jui-I Chang, Chen-Ying Lee and Geng-Yu Lin

Advances in Management and Applied Economics, 2021, vol. 11, issue 5, 3

Abstract: The purpose of this paper is to investigate the effects of real earnings management on firm borrowing cost of public-listed in Taiwanese manufacturing industry during 2010 to 2017, and also examines the moderating effect of the directors’ and officers’ liability insurance (D&O insurance) on real earnings management and borrowing costs. The empirical results show that borrowing cost is positively related to real earning management but negatively related to D&O insurance purchase. Therefore, the firms with D&O insurance than those without have lower borrowing costs, but the higher the D&O insurance amount, the higher the borrowing costs. Furthermore, D&O insurance has a moderating effect between the real earnings management and borrowing costs. Our findings suggest the relationship between D&O insurance and real earning management, which through the D&O insurance purchasing decision to impact on corporate borrowing costs.  JEL classification numbers: G22, G32, M41.Keywords: Real earnings management, Directors’ and officers' liability insurance,Borrowing costs, Moderating effect.

Date: 2021
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