An Empirical Study On The Relationship Between Debt Financing And Earnings Management

In order to achieve the optimal capital structure, alleviate tight financial situation, obtain the financial leverage income, listed companies tend to debt financing, although the ability to absorb capital and the proportion of debt capital is different, generally the debt level maintains at a high level.But when the creditors make the credit decision, will assessment the credit rating. In order to avoid risks, and make sure withdraw the capital, creditors will through signing the form of debt covenants, put forward various restrictive provisions to the listed companies, such as restrictions on the use of debt capital, maintain a certain amount of free cash, this paper mainly study the debt covenants of these constraints would restrict the earnings management behavior of listed companies according the debt financing.Since the current scale of social financing has increased year by year, debt capital accounts for a high proportion of corporate assets, the enterprises pay more and more attention to debt capital.Given the current constant revision of accounting standards, increasingly strict supervision of the capital market, it can easily be identified by external recognition, which is the earnings by manipulating the accrual items. So the enterprises construct the real deal to adjust earnings, although it is at the expense of the long-term interests of the enterprise, the risk of being supervised by the agency is very small. For the managers, this approach to adjust the surplus with lower costs is more popular. Therefore, we study the relationship between debt covenants and two earnings manipulation methods. Due to the current scale of social financing in RMB loans still accounted for more than half the size, it means that debt capital relies on obtain bank loans to financial institutions or non-financial institutions.In this paper, reference the before empirical model before scholars, we construct two models to study the relationship of debt financing and earnings management,select the sample data after the joint-stock reform of state-owned banks,regression model analysis,we think when the debt level is low, the governance role of debt financing plays a leading role,it will restrain the behavior of manipulating earnings,at this point, the two are negatively correlated;when the debt level is higher, the debt covenants will induce the behavior of adjusting the surplus, they are the positive correlation relations. This paper argues that the impact of debt covenants on earnings management is not monotonous, but the "U" structure. And this paper construct a model to study the influence of the earnings management of the preceding period on the current cost of debt financing. When the enterprises are forecasting to carry out debt financing, they usually manage earnings management in the previous period in order to reduce the cost of debt financing.The innovation of this paper:(1) Most of the previous studies have found that the debt covenants can induce enterprises behavior of adjusting the surplus, ignoring the role of governance.In view of the double impact of debt financing, this paper constructs the empirical models to verify the relationship between debt financing and earnings management.It is considered that the relationship of debt financing and earnings management is non monotonic "U" type.(2) This paper studies the influence of the earnings management of the preceding period on the current cost of debt financing. When the enterprises are forecasting to carry out debt financing, they usually manage earnings management in the previous period in order to reduce the cost of debt financing.