Real Earnings Management And Cost Of Debt

Earnings management are widely present in the modern enterprise, and it isvery important for the stakeholders. Earnings management has become the focus areasfor the majority of scholars to engage in academic research and attracted the attentionof the whole society. At present, the means of earnings management listed companieshave applied not only include discretionary accruals but also include enterprises’actual operating activities, that is, so-called real manipulation of real activity. Inorder to achieve the goal of corporate earnings, managers usually employoverproduction to decline the fixed cost of unit product, in which they can reducecurrent operating cost; the company can also increase the current sales through salesdiscount for increasing current profit; as well as the means of reducing sales expense,partial administrative expense that can be controlled for increasing profit.The majority of existing literatures related to earnings management areresearched from the perspective of discretionary accruals. However, actually earningsmanagement of listed companies not only depends on discretionary accruals, instead,more and more companies apply real activities to achieve real activities manipulationfor decorating accounting statements. Consequently, based on real earningsmanagement, this paper intends to research the impact of real earnings managementon debt cost. The real earnings management this thesis refers to mainly includes thefollowing three methods: the abnormal decrease in sales manipulation, overproductionand discretionary expenditure. This paper chooses listed companies of Share A in2010as the final sample after the corresponding elimination. Through the researchcan we find that the debt cost is negatively correlated to overproduction, salesmanipulation of real earning management, which means the creditors often considerthe real earnings management as a manifestation of effective enterprise operation,willing to provide relatively favorable lending terms to those companies that have realearnings management. As a result, the conclusion can illustrate that the creditorscannot identify the real earnings management in the process of enterprise operation.