Earnings management and debt maturity: Evidence from Italy

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Abstract

In this work, we examine whether earnings management affects the debt maturity structure of Italian non-SMEs. We employ accruals quality as a proxy for earnings management. We measure the accrual quality as the absolute value of residual reflects the accruals that are not related to cash flow realized in the current, following or previous year. We measure the debt maturity in two ways. First, we consider it as a dummy variable that takes the value equal to 1 if some of the debt is long-term (exceeding one year), and 0 otherwise. Second, we compute the debt maturity as the ratio of long-term debt to total debt. We employ a quantitative approach, carrying out several regressions (probit, logit, and tobit) analyses to investigate the effect earnings management on debt maturity structure, using financial statement data of 1,001 Italian non-SMEs sampled over the period 2011-2017. This paper provides theoretical and practical findings that support the literature on earnings management. First, the study confirms that accrual quality can use as a proxy of earnings management by the academic community. Then the findings show that earnings management is negatively associated with the possibility to access to long-term debt, and with a proportion of long-term debt in total debt. This evidence may support the managers when they have to plan the financial structure, the lenders and the creditors in their decision-making processes, and the policymakers when they have to set programs aimed to make easier the access to external financial resources.

Keywords: Debt Maturity, Earnings Management, Accruals Quality, Information Asymmetry, Italy, Accounting Quality

Authors’ individual contribution: Conceptualization – A.R.; Methodology – D.T. and A.R.; Software – A.R., D.T., and F.R.; Investigation – A.R., D.T., and F.R.; Formal Analysis – A.R.; Resources – D.T. and F.R.; Writing – Original Draft – A.R. and D.T.; Writing – Review & Editing – A.R. and F.R.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: M41, M40, M1

Received: 26.02.2020
Accepted: 13.04.2020
Published online: 14.04.2020

How to cite this paper: Rey, A., Tuccillo, D., & Roberto, F. (2020). Earnings management and debt maturity: Evidence from Italy. Corporate Ownership & Control, 17(3), 179-186. https://doi.org/10.22495/cocv17i3art14