Study on Earning Management under the Corporate Life Cycle: Based on the Debt Covenants Theory

Abstract

Abstract:

Based on debt covenants theory, with the cash flow patterns as a proxy for firm life cycle, the Chinese listed companies in the 2002-2011 are divided into three kinds of life cycles:growth, maturity and decline, and according to this, in this paper the impact of life cycle and capital structure on earnings management and the way of it are researched. The study finds:different industry cycle has a direct impact on its earnings management, the companies in the cycle of growth and decline have a higher capital structure, which leads to a higher earnings management; the life cycle of growth has a direct positive impact on the accrual and real earning management, and decline cycle has a direct positive impact only on the accrual earning management;and considering the debt covenants condition, the enterprises of growth cycle and decline cycle are inclined to reduce the accrual earning management, however, the enterprises of decline cycle will choose the real earning management, which is more invisible and more costly.

Key words: corporate life cycle, capital structure, debt covenants, earnings management

Wang Yun, Li Yanxi, Song Jinbo, Ma Zhuang. Study on Earning Management under the Corporate Life Cycle: Based on the Debt Covenants Theory[J]. , 2016, 28(12): 75-91.

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