Publication Type
Journal Article
Version
acceptedVersion
Publication Date
6-2011
Abstract
We study earnings management (EM) efforts surrounding seasoned bond offerings using discretionary current accruals. We find that issuers tend to inflate earnings performance prior to an offering. In order for EM efforts to effectively mislead ratings agencies and the bond market, they must lead to inflated bond ratings and decreased offering yields. Regression results indicate the opposite; aggressive EM efforts are associated with lower initial ratings and higher offering yields. We also find a statistically lower proportion of subsequent downgrades for firms with the most aggressive EM efforts, which is inconsistent with these firms’ inflated initial ratings. While some firms may attempt to mislead ratings agencies and market participants by window-dressing earnings, these efforts appear to be counter-productive.
Discipline
Corporate Finance | Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Publication
Journal of Financial and Quantitative Analysis
Volume
46
Issue
3
First Page
687
Last Page
708
ISSN
0022-1090
Identifier
10.1017/S0022109011000147
Publisher
Cambridge University Press
Citation
GATON, Gary L.; CHIYACHANTANA, Chiraphol New; CHUA, Choong Tze; and GOH, Jeremy.
Earnings Management Surrounding Seasoned Bond Offerings: Do Managers Mislead Ratings Agencies and the Bond Market. (2011). Journal of Financial and Quantitative Analysis. 46, (3), 687-708.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/3180
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1017/S0022109011000147
Included in
Corporate Finance Commons, Finance and Financial Management Commons, Portfolio and Security Analysis Commons