TY - JOUR
T1 - External financing and earnings management
T2 - Evidence from international data
AU - Zhang, Yuyang
AU - Uchida, Konari
AU - Dong, Liping
N1 - Funding Information:
This paper is financially supported by the Beijing Social Science Fund Project (Grant number: 18GLB015), Beijing Education Committee Social Science Plan General Project (Grant number: SM201910037001), JSPS KAKENHI Grant Number JP19H01507 and Basic Scientific Research Fund Project of Beijing University of Posts and Telecommunications (Grant number: 2019XKRK02).
Funding Information:
This paper is financially supported by the Beijing Social Science Fund Project (Grant number: 18GLB015 ), Beijing Education Committee Social Science Plan General Project (Grant number: SM201910037001 ), JSPS KAKENHI Grant Number JP19H01507 and Basic Scientific Research Fund Project of Beijing University of Posts and Telecommunications (Grant number: 2019XKRK02) .
Publisher Copyright:
© 2020 Elsevier B.V.
PY - 2020/12
Y1 - 2020/12
N2 - Corporate financing conditions in the external capital market are significantly affected by information asymmetry, while internal financing is not. Given that earnings information influences market perceptions regarding firms’ quality, firms relying on external financing should have incentives to manage earnings to improve their financing conditions. This study investigates the effect of corporate external financing behavior on earnings management. Using a sample comprising 75,790 observations of 12,874 firms in 43 countries, we find that accrual-based and real earnings management are positively associated with firms’ reliance on external financing. This positive relationship holds especially true for firms that rely on equity rather than debt financing. We argue that reliance on external financing (especially equity financing), which is subject to problems arising from information asymmetry, generates a motive for earnings management.
AB - Corporate financing conditions in the external capital market are significantly affected by information asymmetry, while internal financing is not. Given that earnings information influences market perceptions regarding firms’ quality, firms relying on external financing should have incentives to manage earnings to improve their financing conditions. This study investigates the effect of corporate external financing behavior on earnings management. Using a sample comprising 75,790 observations of 12,874 firms in 43 countries, we find that accrual-based and real earnings management are positively associated with firms’ reliance on external financing. This positive relationship holds especially true for firms that rely on equity rather than debt financing. We argue that reliance on external financing (especially equity financing), which is subject to problems arising from information asymmetry, generates a motive for earnings management.
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U2 - 10.1016/j.ribaf.2020.101275
DO - 10.1016/j.ribaf.2020.101275
M3 - Article
AN - SCOPUS:85087134980
VL - 54
JO - Research in International Business and Finance
JF - Research in International Business and Finance
SN - 0275-5319
M1 - 101275
ER -