Refinancing Pressure and Earnings Management: Evidence from Changes in Short-Term Debt and Discretionary Accruals

16 Pages Posted: 28 May 2012 Last revised: 21 Feb 2018

See all articles by Paige Fields

Paige Fields

University of Kansas

Manu Gupta

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate

Michael S. Wilkins

University of Kansas

Shage Zhang

Trinity University

Date Written: February 20, 2018

Abstract

In this paper, we investigate whether refinancing pressure leads managers to manipulate earnings. Our tests examine the relation between changes in short-term debt and discretionary accruals. We find that firms have higher discretionary accruals during periods of increasing short-term debt. We also find that this relationship is stronger for firms that ultimately obtain new loan financing. Finally, we show that the presence of investment grade debt attenuates the relationship between discretionary accruals and refinancing pressure.

Keywords: capital structure, accruals

JEL Classification: G32, M41

Suggested Citation

Fields, Paige and Gupta, Manu and Wilkins, Michael S. and Zhang, Shage, Refinancing Pressure and Earnings Management: Evidence from Changes in Short-Term Debt and Discretionary Accruals (February 20, 2018). Finance Research Letters, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2069076 or http://dx.doi.org/10.2139/ssrn.2069076

Paige Fields

University of Kansas ( email )

1654 Naismith Dr.
Lawrence, KS 66045
United States

Manu Gupta

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate ( email )

Richmond, VA 23284
United States

Michael S. Wilkins (Contact Author)

University of Kansas ( email )

Capitol Federal Hall
1654 Naismith Dr.
Lawrence, KS 66045
United States

Shage Zhang

Trinity University ( email )

San Antonio, TX 78212
United States

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