The Interplay of Leverage, Financing Constraints and Real Earnings Management: A Panel Data Approach

Organizations are formed to gain long-term benefits. However, sometimes myopic management for feigned value enhancement led the early demise of firm. Further, best our knowledge empirical role financing constraints has not yet been explored between relationship leverage and earnings practices. Therefore, present study aims empirically examine impact on Real Earnings Management (REM) practices how influence this association. Employs a panel dataset 3250 non-financial Chinese listed firms time period spanning from 2009 2018. Leverage is categorized into short-term, long-term, total check individual effects each category REM The data were analyzed through fixed-effects random-effects techniques as an econometric approach. First, consistent with positive accounting theory, positive. Second, compared leverage, short-term more pronounced managers’ opportunistic behavior towards using REM. Third, higher (lower) in financially unconstrained (constrained) firms. Fourth, also weak constrained These findings imply that, avoid consequences managerial myopia, investors should abstain invest that use amount debt unconstrained. This first research different categories emerging market, i.e., China, where legal financial structure much poor.