Kauppakorkeakoulu | Laskentatoimen laitos | Laskentatoimi | 2015
Tutkielman numero: 14055
Enhancing credit ratings with earnings management - Empirical analysis of real and accrual-based earnings management and their effects on credit ratings in Finnish listed companies during 2004 - 2012
|Otsikko:||Enhancing credit ratings with earnings management - Empirical analysis of real and accrual-based earnings management and their effects on credit ratings in Finnish listed companies during 2004 - 2012|
|Vuosi:||2015 Kieli: eng|
|Asiasanat:||laskentatoimi; accounting; tulos; return; luotto; credit; maksuvalmius; corporate liquidity; arviointi; evaluation; pörssiyhtiöt; exchange-listed companies|
|Avainsanat:||earnings management; real earnings management; accrual-based earnings management; credit rating; sales manipulation; overproduction; discretionary expenditures|
This study examines whether Finnish publicly listed companies are able to affect their credit ratings with earnings management. Earnings management is analyzed by both real and accrual-based earnings management activities. The study also examines whether the financial crisis of 2008 has an effect on the relationship between credit ratings and earnings management.
The study is a quantitative one and uses OLS regression to investigate changes in the level of earnings management. Real earnings management is studied by examining sales manipulation, overproduction, and discretionary expenditures. Accrual-based earnings management is studied by using the Modified Jones model. The sample consists of companies publicly quoted in NASDAQ OMX Helsinki during 2004 - 2012.
The results imply that Finnish publicly listed companies are able to enhance their credit ratings to some extent with both real and accrual-based earnings management, the former being more useful. Furthermore, earnings management is more utilized in enhancing low credit ratings. All findings on the financial crisis and its effect on the relationship between credit ratings and earnings management are not statistically significant, although some indications can be found. The financial crisis does not seem to affect the ability of the financial indicators used in this study to explain given credit ratings. Thus, the credit rating agency's behavior and ability to give credit ratings does not seem to change due the financial crisis. The use of overproduction and accruals manipulation to enhance credit ratings increase slightly during 2008 - 2012, while the use of sales manipulation and discretionary expenditures decrease during the same time period.
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