The relationship between external financing activities and earnings management: Evidence from enterprise risk management

Teng-Shih Wang, Yi-Mien Lin, Edward M. Werner and Hsihui Chang

International Review of Economics & Finance, 2018, vol. 58, issue C, 312-329

Abstract: This study examines the impact of external financing activities on earnings management decisions and further explores the role of enterprise risk management (ERM) as a potential moderating factor in this association. We find that managers use both real-activities and accrual-based earnings management when engaging in equity financing activities. Moreover, when firms have weaker ERM systems, we find that managers are less likely to use real-activities earnings management in their equity financing efforts. Therefore, our policy-relevant findings suggest that weaker ERM systems can signal poor control mechanisms and attract additional investor scrutiny, thus constraining managers' use of real-activities earnings manipulation to harm long-term firm value.

Keywords: Enterprise risk management; External financing activities; Accrual-based earnings management; Real activities earnings management; Corporate governance (search for similar items in EconPapers)
JEL-codes: G32 G38 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:58:y:2018:i:c:p:312-329

DOI: 10.1016/j.iref.2018.04.003

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