Real earnings management and the cost of new corporate bonds

Wenxia Ge and Jeong-Bon Kim

Journal of Business Research, 2014, vol. 67, issue 4, 641-647

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.

Keywords: Real earnings management; Bond yield spread; Credit rating; New bond issue (search for similar items in EconPapers)
JEL-codes: G32 M41 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (39)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:67:y:2014:i:4:p:641-647

DOI: 10.1016/j.jbusres.2013.01.021

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