Firms' use of accounting discretion to influence their credit ratings

Alissa, Walid; Bonsall, Samuel B.; Koharki, Kevin; Penn, Michael W.

doi:10.1016/j.jacceco.2013.01.001

Cited by 212 publications

(139 citation statements)

References 49 publications

Supporting

Mentioning

115

Contrasting

Unclassified

Order By: Relevance

“…There is also evidence that discretionary accounting practices in earnings management impacts corporate reputation in a negative way. But in contrast to previous findings, another study 9 suggested that firms may be able to move toward their expected ratings by performing earnings management. It suggested that earnings management practice might not be detected by the rating agency, which as a result may lead to the management adopting a more favorable position to gain an increase in debt ratings.…”

Section: Introductioncontrasting

confidence: 71%

“…A bank with less monitoring over borrowers may give rise to undetected earnings management behavior. Another study 9 also suggested that firms may be able to move toward their expected credit ratings by engaging in earnings management. Therefore, under this circumstance, earnings management practice has a significantly positive association with corporate borrowing capacity.…”

Section: Earnings Management Practice and Corporate Borrowing Capacitymentioning

confidence: 99%

See 1 more Smart Citation

The Effect of Earnings Management Practice on Corporate Borrowing Capacity through Corporate Reputation

Setiawan¹,

Hermawan²

2018

Proceedings of the 6th International Accounting Conference (IAC 2017)

View full text Add to dashboard Cite

This research is conducted to determine the association between earnings management practice and corporate borrowing capacity through corporate reputation. Earnings management practice is measured by discretionary accruals based on the Modified Jones Model. Hypotheses are tested using multiple regression analysis and two-stage ordinary least squares for 65 companies listed on the Indonesia Stock Exchange in the period 2012-2013. The results of the research provide empirical evidence that earnings management practice has a significant negative association with corporate reputation, while corporate reputation has a significant positive association with corporate borrowing capacity. The results of this research also show that there is a significant positive association between corporate reputation estimated by earnings management practice and borrowing capacity.

show abstract

Section: Introductioncontrasting

confidence: 71%

Section: Earnings Management Practice and Corporate Borrowing Capacitymentioning

confidence: 99%

The Effect of Earnings Management Practice on Corporate Borrowing Capacity through Corporate Reputation

Setiawan¹,

Hermawan²

2018

Proceedings of the 6th International Accounting Conference (IAC 2017)

View full text Add to dashboard Cite

show abstract

“…In this process. Credit rating scores are coded based on [16]. The results suggest that there is a statistically insignificant mean difference for all four credit rating agencies.…”

Section: Previous Literatures and Hypothesis Developmentmentioning

confidence: 96%

Does Market Performance Influence Credit Risk?

Lim¹,

Mali²

2016

The Journal of the Korea Contents Association

View full text Add to dashboard Cite

This study aims to investigate the association between stock performance and credit ratings, and credit rating changes using a sample of 1,691 KRX firm-years that acquire equity in the form of long-term bonds from 2002 to 2013. Previous U.S. literature is mixed with regard to the relation between credit ratings and stock price. On one hand, there is evidence of a positive relation between credit ratings and stock prices, an anomaly established in U.S. studies. On the other hand, the CAPM model suggests a negative relation between stock prices and credit ratings, implying that investors expect financial rewards for bearing additional risk. To our knowledge, we are the first to examine the relationship between stock price and default risk proxied by credit ratings in period t+1. We find a negative (positive) relation between credit ratings (risk) in period t+1 and stock returns in period t, suggesting that credit rating agencies do not consider stock returns as a metric with the potential to influence default risk. Our results suggest that market participants may prefer firms with higher credit risk because of expected higher returns.■ keyword :|Stock Return|Market Performance|Credit Ratings|Credit Rating Changes|

show abstract

“…Consistently, Ali and Zhang (2009) and Jung, Soderstorm and Yung (2013) report that managers are more likely to strategically manipulate earnings (excluding OCI) to maximize (minimize) the firm's chances of an upgrade (a downgrade). Similarly, Alissa, Bonsall, Koharki and Penn (2013) show that incomeincreasing earnings management activities tend to occur when the firm's actual credit rating tends to be below the firm's expected credit ratings. Relying on the firm's reported income that is subject to managerial manipulation to a higher extent, credit rating agencies might use OCI-based earnings volatility in assigning the firm's credit rating.…”

Section: Hypothesis 4: the Leverage Is Negatively Related To The Volamentioning

confidence: 97%

Does the Variability of Other Comprehensive Income (OCI) Play a Role in the Determination of Cost of Debt, Capital Structure and Credit Ratings?

et al. 2017

View full text Add to dashboard Cite

In this paper, we focus on the usefulness of other comprehensive income (OCI) to debt investors. We conceptualize OCI's usefulness to be its risk relevance. We hypothesize that credit risk is associated with OCI volatility and so we contribute to the debate whether this volatility is viewed by creditors as capturing useful information about debt risk or just "noise." Specifically, we consider whether OCI's volatility that is linked to accounting standards in the recent two decades is associated with cost of debt, non-price terms of debt contracting (i.e. covenants, security), capital and maturity structure, and credit ratings. We construct three samples to conduct our tests: (1) a new loan sample from Dealscan and (2) a comprehensive sample from COMPUSTAT and (3) credit ratings sample. We find strong evidence that higher volatility of OCI is associated with a higher cost of debt, higher likelihood of collateral requirement, and stronger credit rationing (lower use of debt). We also find statistically significant but economically weak evidence that OCI volatility is related to shorter debt maturity and lower credit ratings. Overall, our evidence suggests that OCI volatility provides useful information to credit markets and shapes debt contracting and the firm's capital structure accordingly.

show abstract

Firms' use of accounting discretion to influence their credit ratings

Cited by 212 publications

References 49 publications

The Effect of Earnings Management Practice on Corporate Borrowing Capacity through Corporate Reputation

The Effect of Earnings Management Practice on Corporate Borrowing Capacity through Corporate Reputation

Does Market Performance Influence Credit Risk?

Does the Variability of Other Comprehensive Income (OCI) Play a Role in the Determination of Cost of Debt, Capital Structure and Credit Ratings?

Contact Info

Product

Resources

About