Can Danish Private Companies Manipulate Earnings to Influence Bank's Credit Rating? A Qualitative Approach

Frederik Falch Kaag & Regitze Halkier

Student thesis: Master thesis


Occupational fraud poses a tremendous threat to organizations of all types and sizes, in all parts of the world. Accounting exibility includesa great risk of being subject to earnings management. With private companies applying for credit, one can argue that if the use of earnings management can strengthen a credit rating, the companies would be tempted to take advantage of the opportunity. This thesis contributes to the literature of earnings management by investigating the potentialadvantagesa private Danish company can derive from using accounting exibility and earnings management to manipulate their nancial statements in connection to the credit rating in Denmark. The study includes exploration of the impact thatauditors may have on the opportunity of using earnings management to gain an advantage in a credit rating in Denmark. Furthermore, the study providesan examination of how Danish banks perform credit analysis of private Danish companies and the extent to which they focus on earnings management. The research question is answered by a qualitative approach based upon data from 14 interviews and a survey with 391 respondents. The study nds that the private Danish companies can improve their credit rating by using earnings management, however this might only be benecial for a short period of time. The conclusion is drawn from an analysis of accounting exibility in ÅRL as wellasauditsand credit ratings in Denmark. Theanalysis ofaccounting exibility in ÅRL mainly include; (i) revenues, (ii) lease accounting, (iii) intangible and tangible assets, (iv) inventory and (v) provisions. Future research could includea quantitative study on how earnings managementaects the credit facilities. A thorough study on earnings management over time, in maintaining a credit rating could be an idealaddition to this thesis. Furthermore one could examine the inuence that size of companies, auditors and banks might have.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2019
Number of pages126
SupervisorsMorten Seitz