Exploring the Relationship between New Bank Debt and Earnings Management: Evidence from Italian SMEs

Riccardo Palumbo; Pierangelo Rosati

doi:10.3390/economies10060124

Exploring the Relationship between New Bank Debt and Earnings Management: Evidence from Italian SMEs

Riccardo Palumbo
, Pierangelo Rosati

University "G. dAnnunzio"
Dublin City University

Research output: Contribution to a Journal (Peer & Non Peer) › Article › peer-review

8 Citations (Scopus)

Abstract

This paper investigates the relationship between bank debt and earnings management in private SMEs in a bank-oriented economy. In this study, we leverage a sample of 4866 Italian private SMEs from 2005 to 2012 and propose a new metric to isolate the annual increase in bank debt. The results of our OLS regression suggest that, even though bank monitoring is an effective mechanism to constrain firms’ earnings management, firms engage in higher income-increasing earnings management, as proxied by discretionary accruals, in the fiscal year prior to a new bank loan application. The results are robust to different econometric specifications and are not affected by endogeneity.

Original language	English
Article number	124
Journal	Economies
Volume	10
Issue number	6
DOIs	https://doi.org/10.3390/economies10060124
Publication status	Published - Jun 2022
Externally published	Yes

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth
SDG 10 Reduced Inequalities

Keywords

bank debt
bank monitoring
earnings management
financial reporting

Access to Document

10.3390/economies10060124

Cite this

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title = "Exploring the Relationship between New Bank Debt and Earnings Management: Evidence from Italian SMEs",

abstract = "This paper investigates the relationship between bank debt and earnings management in private SMEs in a bank-oriented economy. In this study, we leverage a sample of 4866 Italian private SMEs from 2005 to 2012 and propose a new metric to isolate the annual increase in bank debt. The results of our OLS regression suggest that, even though bank monitoring is an effective mechanism to constrain firms{\textquoteright} earnings management, firms engage in higher income-increasing earnings management, as proxied by discretionary accruals, in the fiscal year prior to a new bank loan application. The results are robust to different econometric specifications and are not affected by endogeneity.",

keywords = "bank debt, bank monitoring, earnings management, financial reporting",

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T1 - Exploring the Relationship between New Bank Debt and Earnings Management

T2 - Evidence from Italian SMEs

AU - Palumbo, Riccardo

AU - Rosati, Pierangelo

PY - 2022/6

Y1 - 2022/6

N2 - This paper investigates the relationship between bank debt and earnings management in private SMEs in a bank-oriented economy. In this study, we leverage a sample of 4866 Italian private SMEs from 2005 to 2012 and propose a new metric to isolate the annual increase in bank debt. The results of our OLS regression suggest that, even though bank monitoring is an effective mechanism to constrain firms’ earnings management, firms engage in higher income-increasing earnings management, as proxied by discretionary accruals, in the fiscal year prior to a new bank loan application. The results are robust to different econometric specifications and are not affected by endogeneity.

AB - This paper investigates the relationship between bank debt and earnings management in private SMEs in a bank-oriented economy. In this study, we leverage a sample of 4866 Italian private SMEs from 2005 to 2012 and propose a new metric to isolate the annual increase in bank debt. The results of our OLS regression suggest that, even though bank monitoring is an effective mechanism to constrain firms’ earnings management, firms engage in higher income-increasing earnings management, as proxied by discretionary accruals, in the fiscal year prior to a new bank loan application. The results are robust to different econometric specifications and are not affected by endogeneity.

KW - bank debt

KW - bank monitoring

KW - earnings management

KW - financial reporting

UR - https://www.scopus.com/pages/publications/85131684091

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DO - 10.3390/economies10060124

M3 - Article

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VL - 10

JO - Economies

JF - Economies

IS - 6

M1 - 124

ER -

Exploring the Relationship between New Bank Debt and Earnings Management: Evidence from Italian SMEs

Abstract

UN SDGs

Keywords

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