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The purpose of this study is to examine how lenders alter their behavior when faced with real earnings management.

This study uses the incremental R-square approach as in Kim and Kross (2005) to examine how much lenders rely on income statement and balance sheet ratios as the degree of real earnings management increases.

As real earnings management affects mostly the income statement, the authors find that lenders rely less on income statement ratios in making credit decisions in the presence of real earnings management. The authors also find that lenders do not alter their reliance on balance sheet ratios when faced with real earnings management.

This paper is the first to study how lenders alter their reliance on financial statements in making credit decisions in the presence of real earnings management. The findings of this paper could help the regulators set standards to improve the usefulness of financial statements. The findings of this paper could also help practitioners (borrowers and lenders) understand how real earnings management affects credit decisions.

In recent years, using aberration-corrected transmission electron microscopy, the authors have achieved precisely detecting the structural evolution of passive film as well as its interface zone at atomic scale. The purpose of this paper aims to make a brief review to show the authors’ new understanding and perspective on the issue of critical factors determining stability of passive film of Fe-Cr alloy.

The introduction of single crystal enabled the authors to obtain a distinct metal/passive film interface and better characterize the structure of the interface region. The authors use aberration-corrected TEM to conduct cross-sectional observation and directly capture the details across the entire film at a high spatial and energy resolution.

Apart from the passive film itself, the interface zone, including metal/film (Me/F) interface and the adjacent metal side, is also the site which is attacked. Accordingly, the nature of the interface zone, such as microstructure, composition and atomic configuration, is one of the critical factors determining the stability of passive film.

Deciphering the critical factors determining the stability of passive film is of great significance and has been a fundamental issue in corrosion science. Great attention has been paid to the nature of the passive film itself. In contrast, the possible role of the interface between the passive film and the metal is rarely taken into account. Based on the advanced analytical tool with high spatial resolution, the authors have specified the significant role of interface structures on the macro-scale stability of passive film.