Earnings Management Surrounding Seasoned Bond Offerings: Do Managers Mislead Ratings Agencies and the Bond Market

We study earnings management (EM) efforts surrounding seasoned bond offerings using discretionary current accruals. We find that issuers tend to inflate earnings performance prior to an offering. In order for EM efforts to effectively mislead ratings agencies and the bond market, they must lead to i...

Full description

Saved in:
Bibliographic Details
Main Authors: GATON, Gary L., CHIYACHANTANA, Chiraphol New, CHUA, Choong Tze, GOH, Jeremy
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2011
Subjects:
Online Access:https://ink.library.smu.edu.sg/lkcsb_research/3180
https://ink.library.smu.edu.sg/context/lkcsb_research/article/4179/viewcontent/earnings_management_surrounding_seasoned_bond_offerings_av.pdf
Tags: Add Tag
No Tags, Be the first to tag this record!
Institution: Singapore Management University
Language: English
Description
Summary:We study earnings management (EM) efforts surrounding seasoned bond offerings using discretionary current accruals. We find that issuers tend to inflate earnings performance prior to an offering. In order for EM efforts to effectively mislead ratings agencies and the bond market, they must lead to inflated bond ratings and decreased offering yields. Regression results indicate the opposite; aggressive EM efforts are associated with lower initial ratings and higher offering yields. We also find a statistically lower proportion of subsequent downgrades for firms with the most aggressive EM efforts, which is inconsistent with these firms’ inflated initial ratings. While some firms may attempt to mislead ratings agencies and market participants by window-dressing earnings, these efforts appear to be counter-productive.