Creditor Rights and Real Earnings Management: Evidence from Quasi-Natural Experiments

H. Zhang, Sabri Boubaker and X. Ni

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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. \textcopyright 2023 Elsevier Inc.

Keywords: Anti-recharacterization law; Creditor right; Monitoring; Real earnings management; Short-termism (search for similar items in EconPapers)
Date: 2023
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Published in Finance Research Letters, 2023, 53, ⟨10.1016/j.frl.2023.103629⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04435476

DOI: 10.1016/j.frl.2023.103629

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