External financing and earnings management: Evidence from international data

Yuyang Zhang, Konari Uchida, Liping Dong

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

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.

Original languageEnglish
Article number101275
JournalResearch in International Business and Finance
Volume54
DOIs
Publication statusPublished - Dec 2020

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting (miscellaneous)
  • Finance

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