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Article
Publication date: 28 April 2022

Sondes Draief and Adel Chouaya

The aim of this study is to investigate whether debt maturity matters for the choice of earnings management strategy (i.e. accruals earnings management and real earnings…

Abstract

Purpose

The aim of this study is to investigate whether debt maturity matters for the choice of earnings management strategy (i.e. accruals earnings management and real earnings management).

Design/methodology/approach

The sample involves 486 American listed firms extracted from fortune 1,000 over the period 2006–2014. Panel data regression models are employed to empirically test the impact of short-term debt and long-term debt on manager's choice of earnings management form. The generalized least square technique is applied to estimate the parameters of the regression models.

Findings

The results show that managers are more likely to manage earnings through real activities and reduce their use of accruals earnings management once short debt is increasing because the latter induces heavy lender's scrutiny. The managers move hence to real earnings management due to a lower possibility of being discovered. Moreover, the results reveal a simultaneous use of accruals earnings management and real earnings management for firms with high long-term debt. This finding highlights that long-term debt does not produce regular lender's enforcement allowing managers to use both earnings management techniques to reach earnings targets.

Research limitations/implications

This research has two limitations. Like many other studies, the measure of discretionary accruals is subject to measurement errors. Moreover, the sample exclusively involves large firms extracted from Fortune 1,000. Therefore, the attained results may be not available for small and medium firms.

Practical implications

The findings have implications for both researchers and lenders. For researchers, the present work points out that the decision about the debt maturity structure is crucial for all managers because they establish their earnings management policy accordingly. For lenders, the findings imply that increasing scrutiny effectively constrains accounting manipulations but does not eliminate earnings management activities altogether. The managers move to another earnings management strategy (i.e. real earnings management). This evidence may support the lenders and the creditors in their decision-making processes.

Originality/value

This paper adds to the accounting literature by providing new and interesting evidence on the role of debt maturity on the trade-off between the earnings management tools. Prior studies provided mixed finding for the issue of earnings management in levered firms. The findings of this study should be viewed as a first step to understand the mixed results on this issue. While most papers focus on one earnings management form when they examine the earnings management in levered firms, the authors highlight the impact of debt on both accruals and real earnings management simultaneously.

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 23 January 2009

Joshua Abor and Nicholas Biekpe

The purpose of this study is to examine the determinants of capital structure decisions of small and medium enterprises (SMEs) in Ghana. The issue is very relevant…

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Abstract

Purpose

The purpose of this study is to examine the determinants of capital structure decisions of small and medium enterprises (SMEs) in Ghana. The issue is very relevant considering that SMEs have been noted as important contributors to the growth of the Ghanaian economy.

Design/methodology/approach

Regression model is used to estimate the relationship between the firm level characteristics and capital structure measured by long‐term debt and short‐term debt ratios.

Findings

The results of the study suggest that variables such as firm's age, size, asset structure, profitability, and growth affect the capital structure of Ghanaian SMEs. Short‐term debt is found to represent an important financing source for SMEs in Ghana.

Originality/value

The findings of this study have important implications for policy makers and entrepreneurs of SMEs in Ghana.

Details

Journal of Economic Studies, vol. 36 no. 1
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 11 March 2020

Maria Elisabete Neves, Zélia Serrasqueiro, António Dias and Cristina Hermano

This paper aims to analyse the Portuguese companies’ determinants of capital structure. To reach this objective, the authors used data from 37 non-financial Portuguese…

Abstract

Purpose

This paper aims to analyse the Portuguese companies’ determinants of capital structure. To reach this objective, the authors used data from 37 non-financial Portuguese large enterprises and from 4,233 non-financial small and medium enterprises for the period 2010-2016. Additionally, the authors selected a sub-period from 2010 to 2014 for a deeper understanding of the impact of the sovereign debt crisis and the Economic Adjustment Programme of Troika on the capital structure of those companies.

Design/methodology/approach

Three dependent variables were tested according to debt maturity, and a dynamic panel data model, namely, the generalised method of moments system estimator, was used to test the formulated research hypotheses following Arellano and Bover (1995) and Blundell and Bond (1998) to capture the dynamic nature of the firm’s capital structure decisions.

Findings

In general, the results point out that the capital structure decisions depend on a set of firm-specific factors, and that the effects of the determinants of the debt maturity ratios differ according to the type of firm, i.e. large/small firms, and the economic cycle.

Originality/value

To the best of the authors’ knowledge, this is the first study that has been carried out in Portugal by using two samples of large and small companies for analysing the effects of the Economic Adjustment Programme of Troika on the capital structure of companies. The authors seek to understand which type of companies suffered more because of the effects of the Economic Adjustment Programme of Troika during this period, and which are the capital structure determinants that present greater change. Contrary to what might be expected, large companies are the firms that suffer most from the Economic Adjustment Programme. Probably, because these companies are the most immediate, most scrutinised and those that must show abroad that the bank did not fund them in the long term, because of the imposition and limits to grant credit faced by the banks themselves.

Details

International Journal of Accounting & Information Management, vol. 28 no. 3
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 5 October 2020

Zélia Serrasqueiro, Fernanda Matias and Julio Diéguez-Soto

This paper seeks to analyze the family firm's capital structure decisions, focusing on the speed of adjustment (SOA) as well as on the effect of distance from the target…

Abstract

Purpose

This paper seeks to analyze the family firm's capital structure decisions, focusing on the speed of adjustment (SOA) as well as on the effect of distance from the target capital structure on the SOA towards target short-term and long-term debt ratios in unlisted small and medium-sized family firms.

Design/methodology/approach

Methodologically, we use dynamic panel data estimators to estimate the effects of distance on the speeds of adjustment towards those targets. Data for the period 2006–2014 were collected for two research sub-samples: one sub-sample with 398 family firms; the other sub-sample contains 217 non-family firms.

Findings

The results show that the deviation from the target debt ratios impacts negatively on the speeds of adjustment towards target short-term and long-term debt ratios in unlisted family firms. These results suggest that family firms, deviating from target debt ratios, face deviation costs, i.e. insolvency costs, inferior to the adjustment costs, i.e. transaction costs. Therefore, family firms stay away from the target debt ratios for a long time than do non-family firms.

Research limitations/implications

The research sample comprises a low number of family firms, therefore for future research we suggest increasing the size of the sample of family firms to get a deeper understanding of family firms' SOA towards capital structure. Additionally, we suggest the analysis of other potential determinants of the speed of adjustment towards target capital structure.

Practical implications

The results obtained suggest that the distance from the target short-term and long-term debt ratios can be avoided if these firms do not depend almost exclusively on internal finance to adjust towards target capital structure. Moreover, for policymakers, we suggest the creation/promotion of alternative external finance sources, allowing reduced transaction costs that contribute to a faster adjustment of small family firms towards target capital structure.

Originality/value

The most previous research focusing on capital structure decisions have focused on listed family firms. To fill this gap, this study examines the speed of adjustment towards target debt ratios in the context of unlisted family firms. Moreover, transaction costs are a function of debt maturity, therefore this study examines separately the speeds of adjustment towards target short-term and long-term debt ratios. This paper shows that the adjustment costs (i.e. transaction costs) could hold back family firms from rebalancing its capital structure.

Details

Journal of Family Business Management, vol. 12 no. 1
Type: Research Article
ISSN: 2043-6238

Keywords

Article
Publication date: 1 March 2000

Paul C. Trogen

Despite balanced budget requirements, each year most states carry short term debt (STD) across fiscal years. Logit analysis results suggest structural fiscal stress causes…

Abstract

Despite balanced budget requirements, each year most states carry short term debt (STD) across fiscal years. Logit analysis results suggest structural fiscal stress causes states to carry STD across fiscal years. This strategy may not be rational, because STD is a tool for smoothing short-term shortfalls, and not for correcting structural fiscal stress. Cross sectional time series analysis results suggest both structural and cyclical factors influence the amount of year end STD. Findings suggest STD amounts fluctuate as a rational temporary replacement for long-term debt, growing when long term rates rise and decreasing when they fall.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 12 no. 3
Type: Research Article
ISSN: 1096-3367

Article
Publication date: 7 August 2007

Joshua Abor

This study seeks to examine the effect of industry classification on the capital structure of SMEs in Ghana.

3207

Abstract

Purpose

This study seeks to examine the effect of industry classification on the capital structure of SMEs in Ghana.

Design/methodology/approach

The analytical technique employed is regression framework with various capital structure measures as dependent variables, and with industry as the independent variable. Analysis of variance (ANOVA) and other non‐parametric tests were also used to examine the differences in the capital structure of the SMEs across industries.

Findings

The results of this study indicate that SMEs in the agricultural sector exhibit the highest capital structure and asset structure or collateral value, while the wholesale and retail trade industry have the lowest debt ratio and asset structure. The regression results indicate that agriculture and pharmaceutical and medical industries depend more on long‐term and short‐term debt than does the manufacturing sector. Information and communication, and wholesale and retail trade sectors are more likely to use short‐term credit than the manufacturing sector. The results also show that the construction and mining industry is less likely to depend on short‐term debt, while hotel and hospitality depend more on long‐term debt and less on short‐term finance. The results clearly indicate that industry effect is important in explaining the capital structure of SMEs and that there are variations in capital structure across the various industries.

Originality/value

The main value of this paper is the analysis of the effect of industry classification on SMEs' capital structure from the Ghanaian perspective. The study provides insights on the financing behaviour of SMEs across various industries in Ghana.

Details

Studies in Economics and Finance, vol. 24 no. 3
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 27 May 2014

Wenjuan Ruan, Grant Cullen, Shiguang Ma and Erwei Xiang

The authors examine the debt maturity structure of Chinese listed companies during the period when bond market was under-developed and the majority of commercial banks…

2272

Abstract

Purpose

The authors examine the debt maturity structure of Chinese listed companies during the period when bond market was under-developed and the majority of commercial banks were owned by the state. The purpose of this paper is to answer why and how the different ownership control types impact the firms’ preference and accessibility to either long- or short-term debts.

Design/methodology/approach

The univariate analysis was used to test the differences of debt maturity choices for firms grouped by ownership control types, profitability and institutional development. Then, logit regression and ordinary least squares regression were applied to examine the determinants of ownership control types in debt maturity structures.

Findings

Compared to privately controlled firms, state-owned enterprises had greater access to long-term debt and used less short-term debt during the sample period. Evidences also indicate that the on-going financial reform has increased the motivation of banks to consider company profitability in their lending decisions. However, state-owned banks still discriminate private firms in allocation of financial resources, particular in less-developed regions.

Research limitations/implications

Due to the research scope and data limitations, the authors cannot take some factors into consideration, such as collateral, guarantee, credit ranking, financing agreement and leasing obligation.

Originality/value

This study extends the existing literature in three ways. First, the authors investigate the bank discrimination problem into the loan term structure. Second, the authors recognise the effect of financial reform on alleviation in bank discrimination problem. Finally, the authors take the consideration of institutional development of firms’ location areas in their analyses.

Details

International Journal of Managerial Finance, vol. 10 no. 3
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 28 January 2011

Zélia Serrasqueiro

The purpose of this paper is to analyze the importance of information asymmetry in the relationships between Portuguese SME's capital structure decisions and creditors…

2501

Abstract

Purpose

The purpose of this paper is to analyze the importance of information asymmetry in the relationships between Portuguese SME's capital structure decisions and creditors, comparing the results of service SME with those found in manufacturing SMEs.

Design/methodology/approach

Two samples of Portuguese SMEs are considered: one sample is composed by 610 unlisted service SMEs; and, the other sample is made up by 381 unlisted SMEs in manufacturing industry, for the period 1999‐2006. To estimate the results, the two‐step estimation method is used, to control possible bias arising from data selection. In the first step, probit regression is used. In the second step, after the control for possible data bias, dynamic panel estimators are used.

Findings

The results obtained suggest that information asymmetry in the relationships between SMEs and creditors has a greater relative influence on capital structure decisions of service SMEs than on those of manufacturing SMEs.

Practical implications

Given the increasing importance of service SMEs in the Portuguese economy for stimulating employment, business volume, and consequently economic growth, it would be advisable for policy makers to create special long‐term lines of credit, with advantageous terms, so that Portuguese service SMEs, when internal finance is insufficient, can finance more efficiently the growth opportunities and the strategies for diversification. In addition, since SMEs' capital structure decisions present differences, both concerning the sector of industry and over time, the measures adopted by policy makers should differentiate their measures between industry sectors and over time.

Originality/value

First, this paper is pioneering in comparing the adjustment of actual short‐ and long‐term debts, in service and manufacturing SMEs, towards the respective target ratios. Second, it is pioneering in using dynamic estimators and in using the two‐step estimation method, in studies of determinants of capital structure decisions of service and manufacturing SMEs.

Details

Management Research Review, vol. 34 no. 1
Type: Research Article
ISSN: 2040-8269

Keywords

Article
Publication date: 21 September 2021

Umair Saeed Bhutta, Aws AlHares, Yasir Shahab and Adeel Tariq

This study aims to investigate two important research questions. First, this research examines the impact of real earnings management on investment inefficiency of the…

Abstract

Purpose

This study aims to investigate two important research questions. First, this research examines the impact of real earnings management on investment inefficiency of the non-financial listed firms in Pakistan. Second, this research further explores the moderating role of short-term debt on the nexus between real earnings management and investment inefficiency. This study attempts to highlight an important research problem i.e. the jinx of real earnings management from the context of an emerging economy.

Design/methodology/approach

This study employs the data from non-financial listed firms in Pakistan over the period from 2008 to 2018. The study uses panel data methodologies with firm and year fixed-effects to examine the proposed hypotheses. The results are robust to the use of sensitivity analysis, different estimation techniques and endogeneity issues (using two-stage least squares (2SLS) and generalized method of moments (GMM) techniques).

Findings

The results of the research are twofold. First, consistent with the theoretical arguments, the findings reveal that real earnings management increases investment inefficiency and results in over-investments by the firms. Second, short-term debt attenuates the relationship between real earnings management and investment inefficiency. It implies that a higher level of short-term debt weakens the adverse effects of real earnings management on the investment efficiency of the firm.

Originality/value

This study offers original findings on the issues pertaining to the quality of accounting and financial reporting in an emerging economy like Pakistan, where the implementation of regulations is weak in the corporate world and management frequently exploits shareholders' wealth for the short-term benefits.

Details

Journal of Accounting in Emerging Economies, vol. 12 no. 2
Type: Research Article
ISSN: 2042-1168

Keywords

Article
Publication date: 30 October 2009

Mohammad M. Omran and John Pointon

The aim of this paper is to investigate differences in capital structures across industries in Egypt paying particular attention to: corporate characteristics, such as…

3643

Abstract

Purpose

The aim of this paper is to investigate differences in capital structures across industries in Egypt paying particular attention to: corporate characteristics, such as liquidity, asset structure, growth, and size; fiscal characteristics, namely, the application of differential corporate tax rates; and stock market activity.

Design/methodology/approach

Comparisons are made between the four main industrial sectors: food, heavy industries, contracting and services. For each industry four aspects of capital structure are assessed. Firms are also classified according to whether their shares are actively traded on the Egyptian stock market. Multiple regressions are run to test a range of hypotheses. ANOVA and multiple comparison procedures are also employed.

Findings

Across Egyptian firms, higher business risks do not generally result in lower levels of long‐term capital structure. The contracting sector is significantly different from food, heavy industries and services in its determinants of its short‐term financing and interest ratios. The sector also has a higher level of debt, and so a hypothesised tax‐induced higher debt level for the services sector, which has the highest corporate tax rate, is rejected. Asset‐backing is particularly important in heavy industries, and in non‐actively traded firms. Size and growth are positively related to short‐term financing in heavy industries and services.

Originality/value

The value lies in the comprehensiveness of the study, covering both short‐ and long‐term capital structures across industries, both income measures and capital indebtedness, and distinctions according to whether the shares are actively traded or not.

Details

Review of Accounting and Finance, vol. 8 no. 4
Type: Research Article
ISSN: 1475-7702

Keywords

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