Creditor rights and real earnings management: Evidence from quasi-natural experiments

Huilin Zhang, Sabri Boubaker and Xiaoran Ni

Finance Research Letters, 2023, vol. 53, issue C

Abstract: This paper exploits the staggered adoption of anti-recharacterization laws across the U.S. states as quasi-natural experiments to study the role of creditor rights in affecting real earnings management. The empirical findings show that strengthening creditor rights significantly increases real earnings management in nonfinancial firms. This effect is more pronounced for firms with higher distress risk and weaker governance. Our findings are robust to a battery of sensitivity checks and reveal increased real earnings management as an unintended consequence of strengthening creditor rights.

Keywords: Creditor right; Real earnings management; Anti-recharacterization law; Monitoring; Short-termism (search for similar items in EconPapers)
JEL-codes: G34 G38 M41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (4)

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Working Paper: Creditor Rights and Real Earnings Management: Evidence from Quasi-Natural Experiments (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:53:y:2023:i:c:s154461232300003x

DOI: 10.1016/j.frl.2023.103629

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