Effects of Corporate Credit Risk on the Earnings Management Driven by Financing Demand

Abstract

Abstract:

For the purpose of financing successfully, companies generally have the behavior of whitewashing financial statements; this phenomenon is particularly prominent in Chinese companies. In order to analyze the impact of whitewashing financial statements on corporations' credit risk, we use a sample of A-stock listed firms in Shanghai and Shenzhen stock exchanges from 2009 to 2012, and investigate the mechanism of whether earnings management affects corporations' credit risk under the drive of financing demand. Empirical results indicate that, firstly, the larger the financing demands, the higher the companies' real activities manipulation. Secondly, the companies' earnings management driven by its financing demands will increase its credit risk significantly, but different manipulation methods of earnings management will have different effects. This study reveals the effect of earnings whitewash on corporate credit risk, enriching the literature regarding earnings management, and also can help banks make credit decisions and improve delisting system of listed companies in China.

Key words: financing demand, earnings management, corportate credit risk

Xu Chaohui, Zhou Zongfang. Effects of Corporate Credit Risk on the Earnings Management Driven by Financing Demand[J]. , 2016, 28(7): 12-21.

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