Earnings Management in Manager-owned Firms: Are Lenders Fooled?

Publikation: KonferencebidragPaperForskning

Resumé

This paper explores the causes and cost-of-debt consequences of earnings management in manager-owned firms. We identify a unique institutional setting in which the owner-manager has discretion to shift income from salary to dividends at almost no direct cost due to approximate tax neutrality between the two income streams, and hence increase reported earnings. We term this behavior salarydividend earnings management (SDEM, hereafter). We find that the use of SDEM is associated with the magnitude of debt, and that SDEM firms obtain cost of debt benefits. Both of these relations are stronger in magnitude around the zero earnings benchmark, but not around the last year’s earnings benchmark. The findings extend the earnings management and commercial lending literature by documenting opportunistic behavior and caused effects in firms where manager-shareholder agency conflicts are absent.
OriginalsprogEngelsk
Publikationsdato2018
Antal sider51
StatusUdgivet - 2018
BegivenhedNordic Accounting Conference 2018 - Copenhagen Business School. CBS, Frederiksberg, Danmark
Varighed: 15 nov. 201816 nov. 2018
https://conference.cbs.dk/public/conferences/16/schedConfs/70/program-en_US.pdf

Konference

KonferenceNordic Accounting Conference 2018
LokationCopenhagen Business School. CBS
LandDanmark
ByFrederiksberg
Periode15/11/201816/11/2018
Internetadresse

Bibliografisk note

CBS Bibliotek har ikke adgang til materialet

Emneord

  • Earnings management
  • Commercial lending
  • Owner-managed firms
  • Private firms
  • Cost of debt

Citer dette

Jensen, M., Christoffersen, J., & Plenborg, T. (2018). Earnings Management in Manager-owned Firms: Are Lenders Fooled?. Afhandling præsenteret på Nordic Accounting Conference 2018, Frederiksberg, Danmark.
Jensen, Morten ; Christoffersen, Jeppe ; Plenborg, Thomas. / Earnings Management in Manager-owned Firms : Are Lenders Fooled?. Afhandling præsenteret på Nordic Accounting Conference 2018, Frederiksberg, Danmark.51 s.
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Jensen, M, Christoffersen, J & Plenborg, T 2018, 'Earnings Management in Manager-owned Firms: Are Lenders Fooled?' Paper fremlagt ved Nordic Accounting Conference 2018, Frederiksberg, Danmark, 15/11/2018 - 16/11/2018, .

Earnings Management in Manager-owned Firms : Are Lenders Fooled? / Jensen, Morten; Christoffersen, Jeppe; Plenborg, Thomas.

2018. Afhandling præsenteret på Nordic Accounting Conference 2018, Frederiksberg, Danmark.

Publikation: KonferencebidragPaperForskning

TY - CONF

T1 - Earnings Management in Manager-owned Firms

T2 - Are Lenders Fooled?

AU - Jensen, Morten

AU - Christoffersen, Jeppe

AU - Plenborg, Thomas

N1 - CBS Library does not have access to the material

PY - 2018

Y1 - 2018

N2 - This paper explores the causes and cost-of-debt consequences of earnings management in manager-owned firms. We identify a unique institutional setting in which the owner-manager has discretion to shift income from salary to dividends at almost no direct cost due to approximate tax neutrality between the two income streams, and hence increase reported earnings. We term this behavior salarydividend earnings management (SDEM, hereafter). We find that the use of SDEM is associated with the magnitude of debt, and that SDEM firms obtain cost of debt benefits. Both of these relations are stronger in magnitude around the zero earnings benchmark, but not around the last year’s earnings benchmark. The findings extend the earnings management and commercial lending literature by documenting opportunistic behavior and caused effects in firms where manager-shareholder agency conflicts are absent.

AB - This paper explores the causes and cost-of-debt consequences of earnings management in manager-owned firms. We identify a unique institutional setting in which the owner-manager has discretion to shift income from salary to dividends at almost no direct cost due to approximate tax neutrality between the two income streams, and hence increase reported earnings. We term this behavior salarydividend earnings management (SDEM, hereafter). We find that the use of SDEM is associated with the magnitude of debt, and that SDEM firms obtain cost of debt benefits. Both of these relations are stronger in magnitude around the zero earnings benchmark, but not around the last year’s earnings benchmark. The findings extend the earnings management and commercial lending literature by documenting opportunistic behavior and caused effects in firms where manager-shareholder agency conflicts are absent.

KW - Earnings management

KW - Commercial lending

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KW - Private firms

KW - Cost of debt

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KW - Commercial lending

KW - Owner-managed firms

KW - Private firms

KW - Cost of debt

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Jensen M, Christoffersen J, Plenborg T. Earnings Management in Manager-owned Firms: Are Lenders Fooled?. 2018. Afhandling præsenteret på Nordic Accounting Conference 2018, Frederiksberg, Danmark.