The issuance of convertible bonds and earnings management: evidence from Taiwan

Abstract

Purpose -The purpose of this paper is to examine whether companies engage in earnings management during the specific years when convertible bonds are issued and redeemed; also to determine if any differences exist in earnings management when convertible bonds are issued domestically or abroad. Design/methodology/approach -Discretionary current accruals are adopted as proxies for earnings management and the regression models are used to control the related variables. Findings -The empirical results indicate that companies conduct earnings management in the years when convertible bonds are issued, and that there is no significant difference between earnings management when convertible bonds are issued in Taiwan or abroad. However, data after 2001 indicate that companies issuing convertible bonds abroad perform less earnings management compared to those issuing convertible bonds domestically. The results show no significant difference in earnings management in the years when convertible bonds are redeemed; the reasons may be due to the relatively small sample size and that the majority of convertible bonds are still outstanding. Originality/value -This paper advances findings from previous studies, that firms conducting seasoned equity offerings manage earnings upward to increase the offering proceeds. This paper highlights the linkage between convertible bonds and earnings management. Conducting an integrated analysis of the relationship between convertible bonds and earnings management, it aims to provide a better understanding of the process.

An alternative model for the analysis of detecting electronic industries earnings management using stepwise regression, random forest, and decision tree

“…we could only figure out the correlation between those factors and earnings management or poor quality earnings (Barua et al 2010;Chang et al 2011;Dechow et al 1995Dechow et al , 2012Jiraporn et al 2008), but those factors were not directly used to forecast the level of earnings management. In order to help corporate stakeholders better understand the degree of earnings management and offer auditors a new method to probe earnings management and understand how an enterprise manipulates its earnings management, it is necessary to develop a model which is able to predict the level of earnings management.…”

“…Those companies were all worldwide acknowledged public companies and their stock prices were very high, but they collapsed overnight. Academics pointed out in the past that investors and creditors often do not quite understand how the management and managers of a company manipulate earnings management (Armstrong et al 2013; Barua et al 2010;Chang et al 2011). In order to achieve their performance goals and implement their reward plans, the management often manipulates accruals trying to increase their rewards, have their companies go public and boost their companies' stock prices (Dechow et al 1995;Jiraporn et al 2008).…”

Earnings Management and Equity Issue Firms: A Study in Indian Context

“…Other prior studies (Beatty & Weber, 2003; Dichev & Skinner, 2002) documented that managers increase accruals for violating the debt covenant. Therefore, we expected that leverage is positively related to earnings management. Absolute accruals (AB_ACC ): Chang et al (2010) and Krishnan (2003) found that the possibility of firms having greater discretionary accruals is related to the higher absolute value of total accruals of those firms. Total accrual is calculated as the difference between cash flow from operation and earnings before interest as well as taxes, which is measured as total accruals scaled by lagged total assets.…”

“…Chang, Tseng, & Chang (2010) conducted a study on 286 domestic convertible bonds and 137 overseas convertible bonds from Taiwan context during 1990–2004 to examine the existence of managerial incentive around the issuing of convertible bonds. They employed the modified Jones (1995) model for measuring earnings management.…”

An Investigation of Earnings Management Practices: Examining Generally Accepted Accounting Principles

“…al., 2010;Jackson, et. al., 2010;Chang, et. al., 2011), relatively few have examined the mindset that leads to or the consequences of resorting to the earnings management practices (Merchant and Rockness, 1994;Kaplan, 2001, Belski, et.…”