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Real earnings management and the cost of new corporate bonds

Listed author(s):
  • Ge, Wenxia
  • Kim, Jeong-Bon
Registered author(s):

    We examine the association between real earnings management and the cost of new bond issues of U.S. corporations. We consider three types of real earnings management: sales manipulation, overproduction, and the abnormal reduction of discretionary expenditures. We find that overproduction impairs credit ratings and that sales manipulation and overproduction are associated with higher bond yield spreads. Overall, our results imply that credit rating agencies and bondholders perceive real earnings management as a credit risk-increasing factor and thus require high risk premiums.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0148296313000234
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    Article provided by Elsevier in its journal Journal of Business Research.

    Volume (Year): 67 (2014)
    Issue (Month): 4 ()
    Pages: 641-647

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    Handle: RePEc:eee:jbrese:v:67:y:2014:i:4:p:641-647
    DOI: 10.1016/j.jbusres.2013.01.021
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbusres

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