Research On The Relationship Between Earnings Smoothing And Debt Structure In North American Listed Companies

In the theory of earnings management,earnings smoothing is a kind of methods that smoothing the earnings by overreporting or underreporting company's discretionary accruals or adjusting the real earnings.After decades of investigation and research,earnings smoothing has been defined very necessary and universal.The company's managements take earnings smoothing action for personal motivation or collective motivation.It will damage the interests of the company and investors if the smoothing is for personal motivation.No matter what kind of motivation it for,earnings smoothing hidden financial data or the performance of the company's business indeed.Asymmetric information will aggravate between inside and outside of the company once investors found that.It may lead to the change of the investment behavior.To sum up,the research on earnings smoothing is not only limited to its importance and necessity,but also on its negative effects.In this paper,we hope to find out whether earnings smoothing can change investor's investment strategy by researching the relationship between earnings smoothing and corporate's debt structure.In this paper,We contain the North American listed firms from credit rating firm S&P(Standard&Poor's)Compustat database as samples,to explore how the earnings smoothing affects the companies' debt structure(Leverage and Debt Maturity).We found that the increase of earnings smoothing will reduce leverage,and short-term debt to total debt ratio increases when the earnings smoothing level rise.We believe that the increase of earnings smoothing exacerbates the information asymmetry between the firms and creditors.The firms with higher degree of earnings smoothing will receive more cautious from potential creditors when they want to issue debt,which will result debt leverage declining and portion of short-term debt rising.At the same time,debtors will pay more attention to overreporting earnings smoothing behavior,because it may hurt debtor's repayment capacity in long period,so the overreporting earnings smoothing behavior will make short-term debt ratio increase.Debtors are willing to grant short-term loan to these firms.