IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-08m40001.html
   My bibliography  Save this article

Does a change in debt structure matter in earnings management? the application of nonlinear panel threshold test

Author

Listed:
  • Yu-Shu Cheng

    () (Doctoral Candidate, Graduate School of Management, Taiwan)

  • Yi-Pei Liu

    () (Doctoral Candidate, Department of Accounting, Taiwan)

Abstract

In this study, we apply Hansen¡¦s (1999) nonlinear panel threshold test, the most powerful test of its kind, to investigate the relationship between debt ratio and earnings management of 474 selected Taiwan-listed companies during the September 2002 - June 2005 period. Rather than a fixed positive relation that is determined from the OLS, our empirical results strongly suggest that when a firm¡¦s debt ratio exceeds 46.79% and 62.17%, its debt structure changes, which in turn leads to changes in earnings management. With an increase in debt ratio, managers tend to manage earnings to a greater extent and at a higher speed. In other words, the threshold effect of debt on the relationship between debt ratio and earnings management generates an increasingly positive impact. These empirical results provide concerned investors and authorities with an enhanced understanding of earnings management, as manipulated by managers confronted with different debt structures.

Suggested Citation

  • Yu-Shu Cheng & Yi-Pei Liu, 2008. "Does a change in debt structure matter in earnings management? the application of nonlinear panel threshold test," Economics Bulletin, AccessEcon, vol. 13(4), pages 1-10.
  • Handle: RePEc:ebl:ecbull:eb-08m40001
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/pubs/EB/2008/Volume13/EB-08M40001A.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    2. DeFond, Mark L. & Jiambalvo, James, 1994. "Debt covenant violation and manipulation of accruals," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 145-176, January.
    3. Warfield, Terry D. & Wild, John J. & Wild, Kenneth L., 1995. "Managerial ownership, accounting choices, and informativeness of earnings," Journal of Accounting and Economics, Elsevier, vol. 20(1), pages 61-91, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-08m40001. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.