Do firms manage earnings after a downgrade in their credit rating?

IF 3.6 Q1 BUSINESS, FINANCE Review of Accounting and Finance Pub Date : 2023-07-24 DOI:10.1108/raf-10-2022-0299
Hardjo Koerniadi
{"title":"Do firms manage earnings after a downgrade in their credit rating?","authors":"Hardjo Koerniadi","doi":"10.1108/raf-10-2022-0299","DOIUrl":null,"url":null,"abstract":"\nPurpose\nThis paper aims to examine whether firms engage in earnings management immediately after experiencing a downgrade in their credit rating.\n\n\nDesign/methodology/approach\nThis paper uses fixed-effects regression models to examine real- and accrual-based earnings management after firms experience a downgrade in their credit rating.\n\n\nFindings\nInconsistent with prior studies where firms are reported to opportunistically increase their earnings prior to a credit rating event, this paper finds that firms use income-decreasing earnings management after their ratings are downgraded. This paper also finds that firms downgraded to below the investment grade rating not only significantly reduce both abnormal cash flows and discretionary accruals but also report larger asset impairments, suggesting that these firms exploit the rating downgrade to employ a big bath accounting.\n\n\nPractical implications\nThe results of this paper have practical implications for investors fixating on firm earnings after a credit rating downgrade, for shareholders of downgraded firms and regulators such as credit rating agencies.\n\n\nOriginality/value\nThe findings of this study contribute to the thin literature on earnings management after changes in credit rating by shedding lights on earnings management after a rating downgrade and complement the literature on the accounting choice of financially distressed firms. The empirical evidence documented in this study suggests that the occurrence of income-decreasing earnings management is not limited to only after a sovereign country rating downgrade as documented in a prior study but also occurs after a rating downgrade not associated with this event.\n","PeriodicalId":21152,"journal":{"name":"Review of Accounting and Finance","volume":null,"pages":null},"PeriodicalIF":3.6000,"publicationDate":"2023-07-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Review of Accounting and Finance","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1108/raf-10-2022-0299","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0

Abstract

Purpose This paper aims to examine whether firms engage in earnings management immediately after experiencing a downgrade in their credit rating. Design/methodology/approach This paper uses fixed-effects regression models to examine real- and accrual-based earnings management after firms experience a downgrade in their credit rating. Findings Inconsistent with prior studies where firms are reported to opportunistically increase their earnings prior to a credit rating event, this paper finds that firms use income-decreasing earnings management after their ratings are downgraded. This paper also finds that firms downgraded to below the investment grade rating not only significantly reduce both abnormal cash flows and discretionary accruals but also report larger asset impairments, suggesting that these firms exploit the rating downgrade to employ a big bath accounting. Practical implications The results of this paper have practical implications for investors fixating on firm earnings after a credit rating downgrade, for shareholders of downgraded firms and regulators such as credit rating agencies. Originality/value The findings of this study contribute to the thin literature on earnings management after changes in credit rating by shedding lights on earnings management after a rating downgrade and complement the literature on the accounting choice of financially distressed firms. The empirical evidence documented in this study suggests that the occurrence of income-decreasing earnings management is not limited to only after a sovereign country rating downgrade as documented in a prior study but also occurs after a rating downgrade not associated with this event.
查看原文
分享 分享
微信好友 朋友圈 QQ好友 复制链接
本刊更多论文
公司在信用评级下调后是否管理收益?
目的本文旨在考察企业在经历信用评级下调后是否立即进行盈余管理。设计/方法论/方法本文使用固定效应回归模型来检验企业信用评级下调后基于实际和权责发生制的盈余管理。研究结果与先前的研究不一致,即据报道,企业在信用评级事件发生前会机会主义地增加收入,本文发现,企业在评级被下调后会使用收入递减的盈余管理。本文还发现,被降级至投资级以下的公司不仅显著减少了异常现金流和可自由支配应计项目,而且报告了更大的资产减值,这表明这些公司利用评级下调来采用大浴池会计。实际意义本文的研究结果对信用评级下调后关注公司收益的投资者、被下调公司的股东和信用评级机构等监管机构具有实际意义。独创性/价值这项研究的结果通过揭示评级下调后的盈余管理,为信用评级变化后的盈余控制文献做出了贡献,并补充了关于财务困境公司会计选择的文献。本研究中记录的经验证据表明,收入减少的盈余管理不仅发生在先前研究中记录到的主权国家评级下调之后,而且发生在与该事件无关的评级下调之后。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
求助全文
约1分钟内获得全文 去求助
来源期刊
CiteScore
4.30
自引率
0.00%
发文量
18
期刊最新文献
CEO compensation risk and pay for luck asymmetry Stock market reaction to mandatory climate change reporting: case of Bursa Malaysia Corporate narrative reporting on Industry 4.0 technologies: do the COVID-19 pandemic and governance structure matter? Interbank systemic risk network in an emerging economy The effect of economic, environmental and social sustainability performance on accounting conservatism: the moderating role of good corporate governance
×
引用
GB/T 7714-2015
复制
MLA
复制
APA
复制
导出至
BibTeX EndNote RefMan NoteFirst NoteExpress
×
×
提示
您的信息不完整,为了账户安全,请先补充。
现在去补充
×
提示
您因"违规操作"
具体请查看互助需知
我知道了
×
提示
现在去查看 取消
×
提示
确定
0
微信
客服QQ
Book学术公众号 扫码关注我们
反馈
×
意见反馈
请填写您的意见或建议
请填写您的手机或邮箱
已复制链接
已复制链接
快去分享给好友吧!
我知道了
×
扫码分享
扫码分享
Book学术官方微信
Book学术文献互助
Book学术文献互助群
群 号:481959085
Book学术
文献互助 智能选刊 最新文献 互助须知 联系我们:info@booksci.cn
Book学术提供免费学术资源搜索服务,方便国内外学者检索中英文文献。致力于提供最便捷和优质的服务体验。
Copyright © 2023 Book学术 All rights reserved.
ghs 京公网安备 11010802042870号 京ICP备2023020795号-1