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Real earnings management and borrowing costs: The moderating effect of the directors’ and officers' liability insurance

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  • Jui-I Chang
  • Chen-Ying Lee
  • Geng-Yu Lin

Abstract

The purpose of this paper is to investigate the effects of real earnings management on firm borrowing cost of public-listed in Taiwanese manufacturing industry during 2010 to 2017, and also examines the moderating effect of the directors’ and officers’ liability insurance (D&O insurance) on real earnings management and borrowing costs. The empirical results show that borrowing cost is positively related to real earning management but negatively related to D&O insurance purchase. Therefore, the firms with D&O insurance than those without have lower borrowing costs, but the higher the D&O insurance amount, the higher the borrowing costs. Furthermore, D&O insurance has a moderating effect between the real earnings management and borrowing costs. Our findings suggest the relationship between D&O insurance and real earning management, which through the D&O insurance purchasing decision to impact on corporate borrowing costs.  JEL classification numbers: G22, G32, M41.Keywords: Real earnings management, Directors’ and officers' liability insurance,Borrowing costs, Moderating effect.

Suggested Citation

  • Jui-I Chang & Chen-Ying Lee & Geng-Yu Lin, 2021. "Real earnings management and borrowing costs: The moderating effect of the directors’ and officers' liability insurance," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 11(5), pages 1-3.
    • Handle: RePEc:spt:admaec:v:11:y:2021:i:5:f:11_5_3
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    More about this item

    Keywords

    real earnings management; directors’ and officers' liability insurance; borrowing costs; moderating effect.;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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