Earnings Manipulation and Leverage Deviation
Author(s):
Article Type:
Research/Original Article (دارای رتبه معتبر)
Abstract:
This study investigates whether the firms’ leverage and leverage deviation are influenced by earnings manipulation over the period 2006-2019 in firms listed in Tehran Stock Exchange. Using ordinary least squares (OLS), two-stage least squares (2SLS) and generalized method of moments (GMM) estimators, we find evidence suggesting that real and accrual-based earnings manipulation is positively associated with firms’ leverage and leverage deviation. In particular, we find that real activities manipulation and accrual-based earnings manipulation are positively (negatively) associated with positive (negative) leverage deviation. The result derived from the current study should be of interest to board of directors, stockholders and policymakers. The findings are significant because more earnings manipulator firms may be less successful in achieving their optimal leverage. After conducting robustness tests, our main conclusions remain valid to different proxies for real and accrual-based earnings manipulation, different measures of firms’ leverage ratio, and different estimation methods. Our results are consistent with the predictions of trade-off theory.
Keywords:
Language:
English
Published:
International Journal of Finance and Managerial Accounting, Volume:7 Issue: 27, Autumn 2022
Pages:
77 to 94
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