The Impact Of Earnings Management On The Cost Of Debt Financing In Commercial Banks

With the development of China's banking industry,earnings management is one of the most important issues of the commercial banks.The earnings management refers to the management of the company in the range of accounting standards which choose accounting methods to maximize the value.Stakeholders including equity and debt investors need the sustainability and growth of corporate earnings.The evidence that enterprise earnings management can meet the needs of stakeholders is enough,but that situation on the commercial bank is opposite.For commercial banks,because of its special operations and opaque,bank stakeholders have higher demands on the commercial bank earnings.They also need the risk aversion.Based on previous studies,from the perspective of the cost of debt financing,this paper investigated whether earnings management of commercial banks can effectively avoid the credit risk.Furthermore,commercial banks can be divided into listed commercial banks and non listed commercial banks;state-owned commercial banks and state-owned commercial banks;large commercial banks,commercial banks and small and medium-sized commercial banks,therefore this paper studied the effects of earnings management on the cost of debt financing from listing situation,state-owned situation and scale situation.The main innovations of this paper are as followings:Firstly,it addressed commercial bank,willingness to avoid risk of creditor's rights and the cost of the debt financing.Secondly,on the basis of previous studies,this paper used a nonlinear model to analyze the relationship between earnings management and cost of debt financing.There are also many shortcomings in this paper.First of all,this paper used the relevant data of 130 commercial banks in China during 2002-2014,which may have limited effects on the empirical results.Secondly,this paper used only one PSTR model to analyze the impact of commercial bank earnings management on the cost of debt financing.Finally,due to space limitations,this paper only considered the state-owned property,assets and listing three factors which influenced the behavior of earnings management of commercial banks on the cost of debt financing.There are many other factors need to be further studied.There are five parts in this paper:The first part is the introduction.The second part is about the theory summary and analysis of the literature on commercial banks earnings management and debt financing costs.The third part is the empirical analysis of the whole banks.Firstly,based on the foregoing assumptions,this paper is ready to make relevant research.Secondly,relevant variables and model are described;then the sample selection and descriptive statistics are described.Finally,this paper uses the PSTR model to make empirical study of the problem.The fourth part is empirical analysis of bank classification.Firstly,according to the listing,the nature of the property and the size of bank,the paper makes three standard classifications of banks and hypothesis.Then it uses the nonlinear model to analyze the empirical results under different research hypothesis.The fifth part provides the policy recommendations according to the empirical results for investors and government.