Earnings Management, Capital Structure and the Role of Institutional Environments

Zhe An, Donghui Li, Jin Yu
2013 Social Science Research Network  
This paper examines the effect of earnings management on financial leverage and how this relation is influenced by institutional environments by employing a large panel of 25,798 firms across 37 countries spanning the years 1989 to 2009. We find that firms with high earnings management activities tend to have high corporate leverage. More importantly, this positive relation is attenuated by strong institutional environments. Our results lend strong support to the agency theory of free cash
more » ... y of free cash flow. Various robustness tests confirm our main conclusions. JEL Classifications: G32, G15.
doi:10.2139/ssrn.2207804 fatcat:fl74fb5ykff4vifa4wyvz7vkzu