Real earnings management and cost of capital |
| |
| Authors: | Jeong-Bon Kim Byungcherl Charlie Sohn |
| |
| Institution: | 1. School of Accountancy, University of Nebraska-Lincoln, Lincoln, NE 68588-0488, United States;2. John F. Carroll Junior Professor Department of Accounting and Information Systems, Pamplin College of Business, Virginia Tech, Blacksburg, VA 24061, United States;3. 309-298-1152, Western Illinois University;1. Radboud University Nijmegen, Institute of Management Research, Netherlands;2. Surrey Business School, University of Surrey, UK;3. Middlesex University Business School, London, UK;1. College of Business Administration, University of Nebraska—Lincoln, Lincoln, NE 68588, United States;2. Herberger Business School, Saint Cloud State University, Saint Cloud, MN 56301, United States |
| |
| Abstract: | This study investigates whether a firm’s cost of equity capital is influenced by the extent of a firm’s real activities management. Using a large sample of U.S. firms, we find that our proxy for the cost of capital is positively associated with the extent of earnings management through the real activities manipulation after controlling for the effect of the accrual-based earnings management. We also provide evidence suggesting that this positive association stems from managerial opportunism rather than from the measurement errors in our real earnings management proxies. The main findings are robust to a battery of sensitivity tests. Collectively, our results suggest that real earnings management activities exacerbate the information quality of earnings used by outside investors, and thus the market demands a higher risk premium for these activities, which is incremental to the risk premium for the accrual-based earnings management. |
| |
| Keywords: | |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
