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Creditor rights and real earnings management: Evidence from quasi-natural experiments

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  • Zhang, Huilin
  • Boubaker, Sabri
  • Ni, Xiaoran

Abstract

This paper exploits the staggered adoption of anti-recharacterization laws across the U.S. states as quasi-natural experiments to study the role of creditor rights in affecting real earnings management. The empirical findings show that strengthening creditor rights significantly increases real earnings management in nonfinancial firms. This effect is more pronounced for firms with higher distress risk and weaker governance. Our findings are robust to a battery of sensitivity checks and reveal increased real earnings management as an unintended consequence of strengthening creditor rights.

Suggested Citation

  • Zhang, Huilin & Boubaker, Sabri & Ni, Xiaoran, 2023. "Creditor rights and real earnings management: Evidence from quasi-natural experiments," Finance Research Letters, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:finlet:v:53:y:2023:i:c:s154461232300003x
    DOI: 10.1016/j.frl.2023.103629
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    More about this item

    Keywords

    Creditor right; Real earnings management; Anti-recharacterization law; Monitoring; Short-termism;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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