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Firms' use of accounting discretion to influence their credit ratings

Author

Listed:
  • Walid M. Alissa

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Samuel B. Bonsall Iv

    (Fisher College of Business - OSU - Ohio State University [Columbus])

  • Kevin Koharki

    (Smeal College of Business - Penn State - Pennsylvania State University - Penn State System)

  • Michael W. Penn Jr.

    (College of Business - Florida State University [Panama City])

Abstract

This paper examines whether firms that deviate from an empirically modeled ("expected") credit rating engage in earnings management activities, as measured by abnormal accruals and real activities earnings management. We find evidence that firms use income-increasing (-decreasing) earnings management activities when they are below (above) their expected ratings. We then test whether such actions are successful in helping these firms move toward their expected credit ratings. The results suggest that firms below or above their expected credit ratings may be able to move toward expected ratings through the use of directional earnings management.

Suggested Citation

  • Walid M. Alissa & Samuel B. Bonsall Iv & Kevin Koharki & Michael W. Penn Jr., 2013. "Firms' use of accounting discretion to influence their credit ratings," Post-Print hal-01069190, HAL.
    • Handle: RePEc:hal:journl:hal-01069190
    DOI: 10.1016/j.jacceco.2013.01.001
    as

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