2013 Fiscal Year Final Research Report

An analysis of the relations between debt contracts and earnings management

Research Project

Project/Area Number	24730384
Research Category	Grant-in-Aid for Young Scientists (B)
Allocation Type	Multi-year Fund
Research Field	Accounting
Research Institution	Niigata University
Principal Investigator	YUMI Inamura 新潟大学, 人文社会・教育科学系, 講師 (80583757)
Project Period (FY)	2012-04-01 – 2014-03-31
Keywords	財務会計 / 実証会計学 / 負債契約
Research Abstract	This study examines debt contracts between firms and debt holders to find the extent that accounting information was used in debt contracts, the process of setting debt contracts, and the relationship between debt contracts and earnings management. The sample consisted of debt contracts data from public firms' financial statements between 2004 and 2008. The findings indicate that debt holders often used accounting information in their debt contracts, such as restricted-earnings covenants; with the extent of accounting information used increasing remarkably after 2007. An empirical analysis of the determinants setting the rigidity of restricted-earnings covenants showed that debt holders use accounting information to analyze firms' past performance and forecasts of firms' future performance to set debt contracts. This result shows the importance of the relationship between debt contracts and earnings management.