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Yu-Shu Cheng and Yi-Pei Liu
''Does a change in debt structure matter in earnings management? the application of nonlinear panel threshold test''
( 2008, Vol. 13 No.4 )
In this study, we apply Hansen¡¦s (1999) nonlinear panel threshold test, the most powerful test of its kind, to investigate the relationship between debt ratio and earnings management of 474 selected Taiwan-listed companies during the September 2002 - June 2005 period. Rather than a fixed positive relation that is determined from the OLS, our empirical results strongly suggest that when a firm¡¦s debt ratio exceeds 46.79% and 62.17%, its debt structure changes, which in turn leads to changes in earnings management. With an increase in debt ratio, managers tend to manage earnings to a greater extent and at a higher speed. In other words, the threshold effect of debt on the relationship between debt ratio and earnings management generates an increasingly positive impact. These empirical results provide concerned investors and authorities with an enhanced understanding of earnings management, as manipulated by managers confronted with different debt structures.
JEL: M4 - Accounting and Auditing: General
C1 - Econometric and Statistical Methods: General
Manuscript Received : Jul 03 2008 Manuscript Accepted : Jul 04 2008

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