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Ill‐intentioned or well‐intentioned: earnings management and trade credit

Ill‐intentioned or well‐intentioned: earnings management and trade credit The use of trade credit as important short‐term financing for firms is increasing. This study explores the differential impact of firm earnings management on trade credit financing under different motives, using A‐share listed firms in China from 2009 to 2020. The results show that accrued and real earnings management reduce a firm's trade credit. On the other hand, the classification shifting earnings management increases a firm's trade credit. Accrued and real earnings management are opportunistically motivated, while classification shifting earnings management is non‐opportunistically motivated. Moreover, external audits weaken the negative effect of accrued and real earnings management on trade credit and enhance the positive effect of classification shifting earnings management on trade credit, indicating the ‘bilateral matching effect’ between external audits and firms. Finally, financing constraints weaken the impact of earnings management on trade credit. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asian-Pacific Economic Literature Wiley

Ill‐intentioned or well‐intentioned: earnings management and trade credit

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References (56)

Publisher
Wiley
Copyright
© 2023 Crawford School of Public Policy, The Australian National University and John Wiley & Sons Australia, Ltd.
ISSN
0818-9935
eISSN
1467-8411
DOI
10.1111/apel.12382
Publisher site
See Article on Publisher Site

Abstract

The use of trade credit as important short‐term financing for firms is increasing. This study explores the differential impact of firm earnings management on trade credit financing under different motives, using A‐share listed firms in China from 2009 to 2020. The results show that accrued and real earnings management reduce a firm's trade credit. On the other hand, the classification shifting earnings management increases a firm's trade credit. Accrued and real earnings management are opportunistically motivated, while classification shifting earnings management is non‐opportunistically motivated. Moreover, external audits weaken the negative effect of accrued and real earnings management on trade credit and enhance the positive effect of classification shifting earnings management on trade credit, indicating the ‘bilateral matching effect’ between external audits and firms. Finally, financing constraints weaken the impact of earnings management on trade credit.

Journal

Asian-Pacific Economic LiteratureWiley

Published: May 1, 2023

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