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Does earnings management matter for firm leverage? An international analysis

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  • Tung Lam Dang
  • Man Dang
  • Phuong Dung Le
  • Hoa Nhan Nguyen
  • Quang Minh Nhi Nguyen
  • Darren Henry

Abstract

This paper examines the relation between corporate information environment and capital structure decisions, and whether this association changes with cross-country institutional environments. Using earnings management as a measure of the corporate information environment, we find that firms with higher earnings management activities have greater firm leverage ratios. We further document that the effect of earnings management on leverage is more pronounced in countries with weaker institutional environments. Overall, our study adds to the strand of research on imperfect factor markets and verifies the influence of information asymmetry on debt financing choices in a cross-country setting.

Suggested Citation

  • Tung Lam Dang & Man Dang & Phuong Dung Le & Hoa Nhan Nguyen & Quang Minh Nhi Nguyen & Darren Henry, 2021. "Does earnings management matter for firm leverage? An international analysis," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 28(4), pages 482-506, July.
    • Handle: RePEc:taf:raaexx:v:28:y:2021:i:4:p:482-506
    DOI: 10.1080/16081625.2018.1540938
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    Cited by:

    1. Sarah Anobil Okyere & Vera Fiador & Emmanuel Sarpong‐Kumankoma, 2021. "Earnings management, capital structure, and the role of corporate governance: Evidence from sub‐Saharan Africa," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(6), pages 1525-1538, September.
    2. Cynthia P. Cudia & Aeson L. Dela Cruz & Madeleine B. Estabillo, 2021. "Effect of Firm Characteristics and Corporate Governance Practices on Earnings Management: Evidence from Publicly Listed Property Sector Firms in the Philippines," Vision, , vol. 25(1), pages 77-87, March.

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