Is short term debt maturity linked to real earning management?

Abstract

Summary This paper explores the association between the maturity of short-term debt and real earnings management in the context of an emerging market. We use a panel dataset of listed firms in Vietnam over the period from 2009 to 2017 and employ conventional methods for panel data analysis. Our work contributes by documenting a non-linear relationship between short-term debt maturity and manipulation of earnings. In particular, businesses prefer to refrain from manipulating earnings at low short-term debt maturity levels but are likely to manage them at higher short-term debt maturity levels. Under a battery of robustness evaluations, this result remains unchanged. This means that investors/lenders of firms should be vigilant with the information recorded on financial statements because managers can manage corporate earnings, especially at high short-term debt levels.

Literature Review: Mediation Effects of Debt Maturity on Good Corporate Governance in Enhancing Financial Performance

“…Debt Maturity on Financial Performance Liem (2020) discovered that short-term debt maturity is assumed to advance the company's involvement in actual income manipulation. Additionally, genuine earnings management with short-term debt maturity causes companies to lose high financial performance.…”

Financial Distress, Earnings Management, and Leverage Effect on Firm Value with Firm Size as a Moderation Variable

“…Earnings management practices are carried out to avoid default on debt agreements. Research conducted by Karina & Soenarno (2022), Awuye & Aubert (2022), Liem et al, (2022), andMendoza et al, (2020).Earnings management strategy is considered an effort to create better corporate value, according to research conducted by Hernawati et al, (2021). On the other hand, companies with significant nominal assets have an advantage in obtaining access to external funding.…”

“…The formula for calculating the Modified Z-Score is based on the literature of Malau (2017), Malau (2018), Malau & Murwaningsari (2018), Akbar et al, (2022), Liem et al, (2022) Z" = 1,2 (X1) + 1,4 (X2) + 3,3 (X3)+ 0,6 (X4)+ 0,9 (X5)……………………… (2)…”