Does Earnings Management Matter for Firm Leverage? An International Analysis

39 Pages Posted: 23 Aug 2018 Last revised: 6 Sep 2018

See all articles by Man Dang

Man Dang

Danang University of Economics

Darren Henry

La Trobe University - Department of Economics and Finance; Financial Research Network (FIRN)

Date Written: August 23, 2018

Abstract

This paper examines the relation between corporate information environment and capital structure decisions, and whether this association changes with cross-country institutional environments. Using earnings management as a measure of the corporate information environment, we find that firms with higher earnings management activities have greater firm leverage. We further document that the effect of earnings management on leverage is more pronounced in countries with weaker institutional environments. Overall, our study adds to the strand of research on imperfect factor markets and verifies the influence of information asymmetry on debt financing choices in a cross-country setting.

Keywords: Earnings management; Capital structure; Information asymmetry; Institutional environments

JEL Classification: G12; G15; G29; G32

Suggested Citation

Dang, Man and Henry, Darren, Does Earnings Management Matter for Firm Leverage? An International Analysis (August 23, 2018). Available at SSRN: https://ssrn.com/abstract=3237334

Man Dang (Contact Author)

Danang University of Economics ( email )

71 Ngu Hanh Son
Ngu Hanh Son
Danang City, Danang City 0511
Vietnam
+84905132054 (Phone)

Darren Henry

La Trobe University - Department of Economics and Finance ( email )

Department of Economics and Finance
La Trobe Business School
Bundoora 3086 Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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